II. On December 1, 20x1, AVS Company issued 10% bonds with a face amount of $20 million. The bonds mature in 5 years. For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on May 31 and November 30. AVS is a calendar-year corporation. 1. Determine the price of the bonds at December 1, 20x1. Explain how you compute this price. 2.Prepare the journal entry to record the bond issuance on December 1, 20x1. 3. Prepare an amortization table using the effective interest method.
II. On December 1, 20x1, AVS Company issued 10% bonds with a face amount of $20 million. The bonds mature in 5 years. For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on May 31 and November 30. AVS is a calendar-year corporation. 1. Determine the price of the bonds at December 1, 20x1. Explain how you compute this price. 2.Prepare the journal entry to record the bond issuance on December 1, 20x1. 3. Prepare an amortization table using the effective interest method.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:II. On December 1, 20x1, AVS Company issued 10% bonds with a face amount of $20 million. The bonds
mature in 5 years. For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on
May 31 and November 30. AVS is a calendar-year corporation.
1. Determine the price of the bonds at December 1, 20x1. Explain how you compute this price.
2.Prepare the journal entry to record the bond issuance on December 1, 20x1.
3. Prepare an amortization table using the effective interest method.
4. Prepare the journal entry (using the effective interest method) on December 31, 20x1 (adjusting entry, no cash
payment)
5. Prepare the journal entries (using the effective interest method) on May 31, 20x2 (1st payment).
6. What would be the journal entry if all bonds are retired at 103 on June 1, 20x3 right after the third payment.
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