On January 1, 2016. Boomer Universal issued 12% bonds dated January 1, 2016, wit
ID: 2427295 • Letter: O
Question
On January 1, 2016. Boomer Universal issued 12% bonds dated January 1, 2016, with a face amount of $100,000. The bonds mature in 2020 (5 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31
1. Determine the price of the bonds at January 1, 2016.
2. Prepare the journal entry to record their issuance by Boomer on January 1, 2016.
3. Prepare the journal entry to record interest on June 30, 2016, using the effective interest method.
4. Prepare the journal entry to record interest on December 31, 2016, using the effective interest method.
Explanation / Answer
1)Price of bonds
n=5%
i=5*2 = 10 years
Face value 100,000 * .61391 = $61,391
interest 100,000@6% = 6000 * 7.72173 = 46,330
Price of bonds = $107,721
Journal entries
Face value 100,000 * .61391 = $61,391
interest 100,000@6% = 6000 * 7.72173 = 46,330
Price of bonds = $107,721