Answer:
1. Determine the price of the bonds at January 1, 2018.
bonds' market price = PV of face value + PV of coupon payments
PV of face value = $92,000,000 / 1.07²⁰ = $23,774,548
PV of coupon payments = $5,520,000 x 10.594 (PV annuity factor, 7%, 20 periods) = $58,478,880
bonds' market price at issuance = $82,253,428
2. to 4. Prepare the journal entry to record their issuance by The Bradford Company on January 1, 2018, interest on June 30, 2018 and interest on December 31, 2018 (at the effective rate).
January 1, 2018, bonds are issued at a discount
Dr Cash 82,253,428
Dr Discount ob bonds payable 9,746,572
Cr Bonds payable 92,000,000
June 30, 2018, first coupon payment
Dr Interest expense 5,757,740
Cr Cash 5,520,000
Cr Discount on bonds payable 237,740
(82,253,428 x 7%) - 5,520,000 = 237,740
December 31, 2018, second coupon payment
Dr Interest expense 5,774,382
Cr Cash 5,520,000
Cr Discount on bonds payable 254,382
(82,491,168 x 7%) - 5,520,000 = 254,382
