Question

Metlock Co. is building a new hockey arena at a cost of $2,460,000. It received a downpayment of $500,000 from local businesses to support the project, and now needs to borrow $1,960,000 to complete the project. It therefore decides to issue $1,960,000 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%.

Please show all work. Thanks in advance!

Answer 1

	Cost of building	$2,460,000
	Less: downpayment	$500,000
		$1,960,000
						Amortization table
Date	Year	Cashflow	Present value	Calculation		Date	Year	Opening value	Interest	Cash payment	Closing value	Premium amortization	Premium on bonds payable balance	+
01-Jan-19	1	$196,000	$179,817.00	(196,000/(1.09)^1)		01-Jan-19	1	$2,085,787	$187,721	$196,000	$2,077,508	$8,279	$117,508
01-Jan-20	2	$196,000	$164,969.00	(196,000/(1.09)^2)		01-Jan-20	2	$2,077,508	$186,976	$196,000	$2,068,484	$9,024	$108,484
01-Jan-21	3	$196,000	$151,348.00	(196,000/(1.09)^3)		01-Jan-21	3	$2,068,484	$186,164	$196,000	$2,058,647	$9,836	$98,648
01-Jan-22	4	$196,000	$138,851.00	(196,000/(1.09)^4)		01-Jan-22	4	$2,058,647	$185,278	$196,000	$2,047,925	$10,722	$87,926
01-Jan-23	5	$196,000	$127,387.00	(196,000/(1.09)^5)		01-Jan-23	5	$2,047,925	$184,313	$196,000	$2,036,239	$11,687	$76,239
01-Jan-24	6	$196,000	$116,868.00	(196,000/(1.09)^6)		01-Jan-24	6	$2,036,239	$183,261	$196,000	$2,023,500	$12,739	$63,500
01-Jan-25	7	$196,000	$107,219.00	(196,000/(1.09)^7)		01-Jan-25	7	$2,023,500	$182,115	$196,000	$2,009,615	$13,885	$49,615
01-Jan-26	8	$196,000	$98,366.00	(196,000/(1.09)^8)		01-Jan-26	8	$2,009,615	$180,865	$196,000	$1,994,480	$15,135	$34,480
01-Jan-27	9	$196,000	$90,244.00	(196,000/(1.09)^9)		01-Jan-27	9	$1,994,480	$179,503	$196,000	$1,977,984	$16,497	$17,983
01-Jan-28	10	$2,156,000	$910,718.00	(2,156,000/(1.09)^10)		01-Jan-28	10	$1,977,984	$178,016	$2,156,000	$0	$17,983	$0
			$2,085,787									$125,787
	Premium on issue of bonds=		$125,787	(2,085,787-1,960,000)
01-Jul-22	Interest expense	$46,078.32		(2,047,925*9%*6/12*1/2) Carrying amount as on 01 July 2022*9%*6month/12*1/2)
	Premium on bonds payable	$2,922		(Balancing figure) or 11,687[year 5 amortization value)*1/2*1/2
	Cash		$49,000	(196,000*1/2*6/12)
	(to record interest)
01-Jul-22	Bonds payable	$980,000		(1,960,000/2)
	Premium on bonds payable	$41,041		[125,787/2 - (8279+9024+9836+10722)/2-2,922]
	Loss on redeemption	$36,759
	Cash		$1,057,800
	(To record reaquisition)

*feel free ask any doubt related to this question in the comment section. If you face any difficulty while submitting your answers please let me know in the comment section I'll help. Difference could be due to rounding off errors.