Problem:
On January 1, 2013, Mania Enterprises issued 12% bonds dated January 1, 2013, with a face amount of $20 million. The bonds mature in 2022 (10 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31.
Required:
Question 1: Determine the price of the bonds at January 1, 2013.
Question 2: Prepare the journal entry to record the bond issuance by Mania on January 1, 2013.
Question 3: Prepare the journal entry to record interest on June 30, 2013, using the effective interest method.
Question 4: Prepare the journal entry to record interest on December 31, 2013, using the effective interest method.
Note: Provide support for rationale.