Investee company issued 20% bonds dated January 1, 2023, with a face amount of $20 million. The bonds mature in 10 years. For bonds of similar risk and maturity, the market yield is 16%. Interest is paid semiannually on June 30 and December 31. Determine the price of the bonds.

Step 1: Compare the coupon rate and the market rate. Should the bond sell at a discount or at a premium?

Step 2: Calculate how much each interest payment should be.

Step 3: Calculate the present value of the face amount.

Step 4: Calculate the present value of the interest payments.

Step 5: Add the two together. This is the price of the bond.

Step 6: Prepare the journal entry to record bond issuance. Date and describe the entry.

Step 7: Prepare the journal entry to record the June 30, 2023 interest payment. Date and describe the entry.

Step 8: What is the carrying amount of the bonds after the June 30, 2023 interest payment?