On July 1, 2009, Mirage Company issued $250 million of bonds with an 8.5% coupon interest rate. The bonds mature in 10 years and pay interest semiannually on June 30 and December 31 of each year. The market rate of interest on July 1, 2009 for bonds of this risk class was 7%.
Mirage closes its books on December 31.
Required:
1. At what price were the bonds issued?
2. Using the effective interest method, prepare an amortization schedule showing interest expense, amortization, and bond carrying value for each of the first four semiannual payment periods.
3. Prepare journal entries to record the first four semiannual interest payments and related interest accruals.
4. On July 1, 2011, the market interest rate for bonds of this risk class is 8.0%. What is the market value of the bonds on this date?
5. Suppose that 50% of the bonds were repurchased for cash on July 1, 2011 at the market price. If you ignore taxes, what journal entry would the company make to record this partial retirement?