On July 1, 2020, Max Corporation issued $2,000,000 of 8%, 10-year bonds. The market interest rate was 10% at the time of issuance of the bonds. Max uses the effective-interest method of amortization. The bonds pay interest semi-annually on July 1 and January 1. Max has a December 31 year end.

Instructions:

(Round all computations to the nearest dollar.)

a) Calculate the issue price of the bonds. (1 mark)

.

b) Prepare the journal entry to record the issuance of the bonds on July 1, 2020. (2 marks)

c) Prepare the adjusting journal entry to record the accrual of interest on December 31, 2020.

(3 marks)

d) Prepare the journal entry to record the payment of interest January 1, 2021. Assume Max does not use reversing entries. (2 mark)

a)

b) c) d)

b) c) d) Date Accounts Debit Credit