On February 1, 2018, Cromley Motor Products issued 10% bonds, dated February 1, with a face amount of $80 million. The bonds mature on January 31, 2022 (4 years). The market yield for bonds of similar risk and maturity was 9%. Interest is paid semiannually on July 31 and January 31. Barnwell Industries acquired $80,000 of the bonds as a long-term investment. The fiscal years of both firms end December 31.

Required:

1.Determine the price of the bonds issued on February 1, 2018.

2-a.Prepare amortization schedules that indicate Cromley's effective interest expense for each interest period during the term to maturity. (This would be best done in Excel using the formulas.If you use the PV formula, you will not have a rounding error.If you use the tables, you will have a significant rounding error that you must correct for in the last period. Either way is acceptable, just be sure to know how to use the tables for the exam.)

2-b.Prepare amortization schedules that indicate Barnwell's effective interest revenue for each interest period during the term to maturity.

3.Prepare the journal entries to record the issuance of the bonds by Cromley and Barnwell's investment on February 1, 2018.

4.Prepare the journal entries by both firms to record all subsequent events related to the bonds through January 31, 2020. (Remember you need to accrue interest at year end, which is December 31^st.)