Calculate the present value of the bonds

Response to the following problem:

Cathy's Copper Products Inc. was authorized to issue \$1,000,000 of face value bonds.

Date of authorization     January 1, 2017

Term                          3 years

Interest rate                12%

Interest payment dates Semi-annually on June 30 and December 31

The following transactions occurred during 2017.

Jan. 1 Issued \$100,000 of bonds

Jun. 30 Paid the semi-annual interest on the issued bonds and made an entry to record straight-line amortization

Dec. 31 Paid the semi-annual interest on the issued bonds and made an entry to record amortization.

Required: Answer the questions for each of these cases.

Case A: the bonds were issued when the market rate of interest was 12%.

Case B: the bonds were issued when the market rate of interest was 16%.

Case C: the bonds were issued when the market rate of interest was 8%.

1. Calculate

a. the amount of each semi-annual interest payment on the issued bonds;

b. the present value of the bonds; and

c. the amount of amortization applicable to each interest payment date (use the effective interest method of amortization.

2. Prepare journal entries to record the 2017 transactions.