Question - Blue Mountain Power COMPANY obtained authorization to issue 20 year bonds with a face value of 10 million. The bonds are dated may 1, 2011, and have a contract rate of interest of 10 percent. They pay interest on November 1 and May 1. The bonds were issued on August 1, 2011, at 100 plus three months accrued interest.
Instructions: Prepare the necessary journal entries in general form on:
a. August 1, to record the issuance of the bonds.
b. November 1, 2011, to record the first semiannual interest payment on the bond issue.
c. December 31, 2011, to record interest expense accrued through year-end. (Round to nearest dollar.
d. May 1 , 2012, to record the second semiannual interest payment.
e. What was the prevailing market rate of interest on the date that bonds were issued?