Question

Martinez Co. is building a new hockey arena at a cost of $2,510,000. It received a downpayment of $490,000 from local businesses to support the project, and now needs to borrow $2,020,000 to complete the project. It therefore decides to issue $2,020,000 of 10%, 10-year bonds. These bonds were issued on January 1, 2019, and pay interest annually on each January 1. The bonds yield 9% 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 0 decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter 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 e Textbook and Media List of Accounts

Answer 1

Requirement 1:

Date	Account title and Explanation	Debit	Credit
Jan 1,2019	Cash	$2,149,636
	Bonds payable		$2,020,000
	Premium on bonds payable		$129,636
	[To record issuance of bonds payable]

Calculations:

Interest payment = $2,020,000 x 10% = $202,000

Present value of interest payments	$1,296,367
[$202,000 x 6.41766 present value annuity factor (9%, 10 years)]
Present value of face value	$853,268
[$2,020,000 x 0.42241 present value factor (9%, 10 years)]
Bond issue price	$2,149,636

Requirement 2:

Date	Cash Paid	Interest Expense	Premium Amortization	Carrying Amount of Bonds
1/1/19				$2,149,636
1/1/20	$202,000	$193,467	$8,533	$2,141,103
1/1/21	$202,000	$192,699	$9,301	$2,131,803
1/1/22	$202,000	$191,862	$10,138	$2,121,665
1/1/23	$202,000	$190,950	$11,050	$2,110,615

Interest expense = Preceding carrying amount of bonds x 9%

Premium amortization = Cash paid - Interest expense

Carrying amount of bonds = Preceding carrying amount of bonds - Premium amortized

Requirement 3:

Date	Account title and Explanation	Debit	Credit
July 1,2022	Interest expense [$191,862 x 6/12] x 1/2	$47,965.56
	Premium on bonds payable	$2,534
	Cash [202,000 x 6/12] x 1/2		$50,500
	[To record interest]
July 1,2022	Bonds payable	$1,010,000
	Premium on bonds payable (unamortized)	$53,367
	Loss on redemption of bonds	$15,933
	Cash		$1,079,300
	[To record reacquisition]

*Unamortized premium:

Unamortized premium on Redeemed bonds
Total premium on bonds payable [129,636 x 1/2]	$64,818
Premium amortized [(8,533+9,301) x 1/2 + 2,534]	($11,451)
Premium unamortized	$53,367