Question

Pina Co. is building a new hockey arena at a cost of $2,360,000. It received a downpayment of $510,000 from local businesses to support the project, and now needs to borrow $1,850,000 to complete the project. It therefore decides to issue $1,850,000 of 11%, 10-year bonds. These bonds were issued on January 1, 2019, and pay interest annually on each January 1. The bonds yield 10%.

Assume that on July 1, 2022, Pina Co. redeems half of the bonds at a cost of $1,014,800 plus accrued interest. Prepare the journal entry to record this redemption

Answer 1

	Cost of building	$2,360,000
	Less: downpayment	$510,000
		$1,850,000
						Amortization table
Date	Year	Cashflow	Present value	Calculation		Date	Year	Opening value	Interest	Cash payment	Closing value	Premium amortization		Cumulative premium amortization
01-Jan-20	1	$203,500	$185,000.00	(203,500/(1.1)^1)		01-Jan-20	1	$1,963,674	$196,367.00	$203,500	$1,956,541	$7,133	(203,500-1,956,541)	$106,541
01-Jan-21	2	$203,500	$168,182.00	(203,500/(1.1)^2)		01-Jan-21	2	$1,956,541	$195,654.00	$203,500	$1,948,695	$7,846	(203,500-1,956,541)	$98,695
01-Jan-22	3	$203,500	$152,893.00	(203,500/(1.1)^3)		01-Jan-22	3	$1,948,695	$194,870.00	$203,500	$1,940,065	$8,630	(203,500-1,956,541)	$90,065
01-Jan-23	4	$203,500	$138,993.00	(203,500/(1.1)^4)		01-Jan-23	4	$1,940,065	$194,007.00	$203,500	$1,930,572	$9,493	(203,500-1,956,541)	$80,572
01-Jan-24	5	$203,500	$126,357.00	(203,500/(1.1)^5)		01-Jan-24	5	$1,930,572	$193,057.00	$203,500	$1,920,129	$10,443	(203,500-1,956,541)	$70,129
01-Jan-25	6	$203,500	$114,870.00	(203,500/(1.1)^6)		01-Jan-25	6	$1,920,129	$192,013.00	$203,500	$1,908,642	$11,487	(203,500-1,956,541)	$58,642
01-Jan-26	7	$203,500	$104,428.00	(203,500/(1.1)^7)		01-Jan-26	7	$1,908,642	$190,864.00	$203,500	$1,896,006	$12,636	(203,500-1,956,541)	$46,006
01-Jan-27	8	$203,500	$94,934.00	(203,500/(1.1)^8)		01-Jan-27	8	$1,896,006	$189,601.00	$203,500	$1,882,107	$13,899	(203,500-1,956,541)	$32,107
01-Jan-28	9	$203,500	$86,304.00	(203,500/(1.1)^9)		01-Jan-28	9	$1,882,107	$188,211.00	$203,500	$1,866,818	$15,289	(203,500-1,956,541)	$16,818
01-Jan-29	10	$2,053,500	$791,713.00	(2,053,500/(1.1)^10)		01-Jan-29	10	$1,866,818	$186,682.00	$2,053,500	$0	$16,818	(203,500-1,956,541)	$0
			$1,963,674									$113,674
	Premium on issue of bonds=		$113,674	(1,963,674-1,850,000)
01-Jul-22	Interest expense	$48,502.00		(1,940,065*10%*6/12*1/2) Carrying amount as on 01 July 2022*10%*6month/12*1/2)
	Premium on bonds payable	$2,373.00		(Balancing figure) or 11,687[year 4 amortization value)*1/2*1/2
	Cash		$50,875.00	(203,500*1/2*6/12)
	(to record interest)
01-Jul-22	Bonds payable	$925,000		(1,850,000/2)
	Premium on bonds payable	$42,660		[113,674/2 - (7133+7846+8630)/2-2,373]
	Loss on redeemption	$47,141		(Balancing figure)
	Cash		$1,014,800
	(To record reaquisition)