Question

Carla Co. is building a new hockey arena at a cost of $2,620,000. It received a downpayment of $480,000 from local businesses to support the project, and now needs to borrow $2,140,000 to complete the project. It therefore decides to issue $2,140,000 of 12%, 10-year bonds. These bonds were issued on January 1, 2019, and pay interest annually on each January 1. The bonds yield 11%. Prepare the journal entry to record the issuance of the bonds on January 1, 2019. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Debit Credit Date Account Titles and Explanation January 1, 2019

Answer 1

Let us first calculate the issue price of the bonds

Year	PV Factor	Amount	Present Value
1	0.900901	$          256,800	$          231,351
2	0.811622	$          256,800	$          208,425
3	0.731191	$          256,800	$          187,770
4	0.658731	$          256,800	$          169,162
5	0.593451	$          256,800	$          152,398
6	0.534641	$          256,800	$          137,296
7	0.481658	$          256,800	$          123,690
8	0.433926	$          256,800	$          111,432
9	0.390925	$          256,800	$          100,389
10	0.352184	$          256,800	$             90,441
10	0.352184	$       2,140,000	$          753,675
		Issue price	$       2,266,030

Premium = Issue price - face value = 2,266,030 - 2,140,000 = 126,030

Entry would be

Date	Accounts and Explanation	Debit	Credit
Jan 1, 2019	Cash	$ 2,266,030
	12% Bonds Payable		$ 2,140,000
	Premium on Bonds Payable		$    126,030
	(To record the issuance of bonds)