Question - On January 1, Rare Bird ltd. purchased 12% bonds dated January 1, with a face amount of $20 million. The bonds mature in 2022 (10 years). For bonds similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31.
Required -
1) Determine the price of the bonds at January 1.
2) Prepare the journal entry to record the bond purchase by Rare Bird on January 1.
3) Prepare the journal entry to record interest on June 30, using the effective interest method.
4) Prepare the journal entry to record interest on December 31, using the effective interest method.