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On June 30 of the current year, Blue Ridge Power issued bonds with a $40,000,000 face value and an annual coupon rate of 9 percent.

On June 30 of the current year, Blue Ridge Power issued bonds with a $40,000,000 face value and an annual coupon rate of 9 percent. The bonds mature in 10 years and pay semiannual interest on December 31 and June 30. They were issued when the annual market interest rate for bonds of similar type, and risk was 10%.

a.Compute the issue price for the bond that results in an effective annual interest rate of 10 percent. (Hint: Discount both the interest payments and the maturity value over 20 semiannual periods at 5 percent.)

b.Prepare journal entry to record the issuance of the bonds at the sales price you computed in parta.

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