Question

Venezuela Co. is building a new hockey arena. Information concerning the arena follows. $2,500,000 $500,000 $2,000,000 Cost of arena Down payment received with fund-raising from local businesses to support the Issuance of bonds on January 1, 2016 Interest is paid annually on January 1, starting in 12 months. Stated interest rate on bonds Term of bonds in years Yield on bonds 10.50% 10 10.00% Wnstructions: Remember to show "cents" in all dollar amounts. (a) Prepare the journal entry to record the issuance of the bonds and the related bond issue costs incurred on January 1, 2016. Present value (issue price) of the bonds using the Excel PV function ---> Debit T Credit Choose from the following list of account names: Bonds Payable Cash Discount on Bonds Payable Gain on Redemption of Bonds Interest Expense Interest Payable Interest Receivable Interest Revenue Loss on Redemption of Bonds Premium on Bonds Payable Jan. 1 (b) Prepare a bond amortization schedule up to and including January 1, 2020, using the effective interest method. Interest Paid $0.00 Interest Expense $0.00 Premium Amort. $0.00 Bond Carrying Date Jan 1, 16 Jan 1, 17 Jan 1, 18 Jan 1, 19 Jan 1, 20 (c) Assume that on July 1, 2019, Venezuela Co. retires half of the bonds at a cost of $1,065,000 plus accrued interest. Prepare the journal entries to record this redemption. P14-20

Answer 1

Part A

Present value function

Pmt = 2000000*10.50% = $210000

Nper = 10

Fv = 200000

Rate=10%

PV function of excel

=-PV(rate,nper,PMT, (FV),type)

=-PV(10%,10,210000,2000000)

=$2061446

Date	General journal	Debit	Credit
Jan. 1	Cash	2011446
	Unamortized bond issue costs	50000
	Bonds payable		2000000
	Premium bonds payable		61446

Part B

Date	Interest paid	Interest expense (10%)	Premium amortization	Bond carrying
Jan1, 16				2061446
Jan1, 17	210000	206145	3855	2057590
Jan1, 18	210000	205759	4241	2053349
Jan1, 19	210000	205335	4665	2048684
Jan1, 20	210000	204868	5132	2043553

Part C

Unamortized Bond Issue Costs =(50000- (50000/10*6/12*7))*50% = 16250

Carrying value of bonds as of 1/1/19 (2048684*50%)	1024342
Amortization of bond premium until 7/1/19 (210000/4)-(204868/4)	1283
Carrying value of bonds as of 7/1/19	1023059
Carrying value of ½ of bonds as of 7/1/19 (1023059+16250)	1023059
- reacquisition price of ½ of bonds (1065000+16250)	1081250
= gain or loss on redemption of ½ of bonds	-58191

Entry of accrued interest

Date	General journal	Debit	Credit
Jul. 1	Interest expense (1024342*10%*6/12)	51217
	Premium on bonds payable	1283
	Cash		52500

Entry for reacquisition

Date	General journal	Debit	Credit
Jul. 1	Bonds Payable ($2,000,000 × 50%)	1000000
	Premium on bonds payable	23059
	Loss on Redemption of Bonds	58191
	Unamortized Bond Issue Costs		16250
	Cash		1065000