On January 1, 2011, Shirley Corporation purchased 10% bonds dated January 1, 201

Question

On January 1, 2011, Shirley Corporation purchased 10% bonds dated January 1, 2011, with a face amount of $10 million. The bonds mature in 2020 (10 years). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31.
Required:
1. Determine the price of the bonds at January 1, 2011.
2. Prepare the journal entry to record the bond purchase by Shirley on January 1, 2011.
3. Prepare the journal entry to record interest on June 30, 2011, using the effective interest method.
4. Prepare the journal entry to record interest on December 31, 2011, using the effective interest method. In its 2011 annual report to shareholders, Calipari Mining disclosed the following: Calipari leases mineral interests and various other types of properties, including shovels, offices and miscellaneous equipment. Certain of the mineral leases require minimum annual royalty payments, and other provide for royalties based on production. Summarized below at December 31, 2011, are future minimum rentals and royalties under non-cancelable leases (amounts in millions): Required: Assume that the operating lease payments disclosed are from a single contract that lasts through 2019. How much rent expense on these leases will be charged in 2012 and 2013? Explain. What amount would the Calipari December 31, 2011, balance sheet report as long-term lease liabilities? Explain. What amount of the 2012 capital lease payment by Calipari would represent interest expense? Explain. On January 1, 2011, Shirley Corporation purchased 10% bonds dated January 1, 2011, with a face amount of $10 million. The bonds mature in 2020 (10 years). For bonds of similar risk and maturity, the market yield is 12%. Interest is paid semiannually on June 30 and December 31. Required: 1. Determine the price of the bonds at January 1, 2011. 2. Prepare the journal entry to record the bond purchase by Shirley on January 1, 2011. 3. Prepare the journal entry to record interest on June 30, 2011, using the effective interest method. 4. Prepare the journal entry to record interest on December 31, 2011, using the effective interest method.

Explanation / Answer

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