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In-class Exercise
The Wellington Company issued 9% bonds, dated January 1, with a face amount of $70 million on January 1, year 1.
The bonds mature on December 31, year 10. For bonds of similar risk and maturity, the market yield is 10%, Interest is paid semiannually on June 30 and December 31.
Required:
year 1.
1. Determine the price of the bonds at January 1,
2. Prepare the journal entry to record their issuance by The Wellington Company on January 1, year 1.
3. Prepare the journal entry to record interest on June 30, year 1 (at the effective rate).
4. Prepare the journal entry to record interest on December 31, year 1 (at the effective rate.
See attached picture with the problem
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