Accounting for Bonds

On May 1, 2020, Merrill Corp issued $1 million ten-year bonds. The bonds pay 10% interest semi-annually on October 31 and April 30. The bonds were issued to yield 12%. Merrill Corp has a fiscal year that ends December 31 each year. Fields Corporation uses the effective-interest method to calculate its interest expense each period.

Required:

1. Compute the issue price of the bonds and the journal entry at issuance.
2. Prepare the bond amortization table through April 30, 2021.
3. Prepare the journal entry or entries associated with this bond on December 31, 2020 and April 30, 2021.
4. Assume on May 1, 2021, Merill Corp decided to early retire the bonds by paying at 97 (97% of the face amount). Prepare the journal entry for bond early retirement.

PV of ordinary annuity

Period	4%	5%	6%	8%	10%	12%
10	8.11090	7.72173	7.36009	6.71008	6.14457	5.65002
20	13.59033	12.46221	11.46992	9.81815	8.51356	4.86958

PV of $1

Period	4%	5%	6%	8%	10%	12%
10	0.67556	0.61391	0.55839	0.46319	0.38554	0.32197
20	0.45639	0.37689	0.31180	0.21455	0.14864	0.10367