Ivanhoe Co. is building a new hockey arena at a cost of $2,750,000. It received a downpayment of $350,000 from local businesses to support the project, and now needs to borrow $2,400,000 to complete the project. It therefore decides to issue $2,400,000 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%.
Answer | |||
Date | Particulars | Debit | Credit |
January 1, 2019 | Cash | $ 2,554,020 | |
Bonds payable | $ 2,400,000 | ||
Premium on bonds payable | $ 154,020 | ||
(To record issuance of bonds at premium) | |||
Working Note | |||
Present value of Coupon payment at 9% = 240000*(6.41765) = $ 1,540,236 |
|||
Present value of maturity value at 9% = 2400000*(0.42241) = $1,013,784 | |||
Issuance price of bond = $ 2,554,020 | |||
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