Question

Tamarisk Co. is building a new hockey arena at a cost of $2,370,000. It received a downpayment of $520,000 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 10%, 10-year bonds. These bonds were issued on January 1, 2016, 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, 2016. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O decimal places e.g. 58,971. If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit January 1, 2016 Prepare a bond amortization schedule up to and including January 1, 2020, using the effective interest method. (Round answers to 0 decimal places, e.g. 38,548.) Cash Paid Date Interest Expense Carrying Amount of Bonds Premium Amortization 1/1/16 1/1/17 1/1/18 1/1/19

Answer 1

Table values are based on:
Face Amount	$1,850,000
Interest Payment	$1,850,000*10% =$185,000
Market Interest rate per period	9%
Cash Flow	Table Value(PV of 9% for 10 period)	Amount	Present Value
PV of Interest	6.41766	$1,85,000	$11,87,267
PV of Principal	0.42241	$18,50,000	$7,81,459
PV of Bonds Payable(Issue Price)			$19,68,726
Premium on Bonds issued =$1,968,726 - $1,850,000 =$118,726
Date	Accounts and explanation	Debit(in $)	Credit(in $)
Jan 1,2016	Cash	$19,68,726
	Bonds Payable		$18,50,000
	Premium on Bond payable		$1,18,726
Date	Cash Paid($1,850,000*10%)	Interest expenses(Bond carrying amount*9%)	Increase in carrying value	Bond carrying amount
Col I	Col II	Col III	Col IV(Col II - Col III)	Col V
01-Jan-16				$                          19,68,726
01-Jan-17	$                                              1,85,000	$                                                         1,77,185	$                                              7,815	$                          19,60,911
01-Jan-18	$                                              1,85,000	$                                                         1,76,482	$                                              8,518	$                          19,52,393
01-Jan-19	$                                              1,85,000	$                                                         1,75,715	$                                              9,285	$                          19,43,108
01-Jan-20	$                                              1,85,000	$                                                         1,74,880	$                                            10,120	$                          19,32,988
	Interest expense accrued for 6 months period =$1,943,108*9%*6/12 =$87,440
	Interest paid for 6 months =$92,500
	Bond Premium amortized for 6 months =$92,500 - $87,440 =$5,060
	Unamortized premium on Bond to be redeemed =$88,048/2 =$44,024
Date	Accounts and explanation	Debit(in $)	Credit(in $)
July 1,2019	Interest expenses	$87,440
	Premium on Bond payable		$5,060
	Cash		$92,500
July 1,2019	Bonds Payable	$9,25,000
	Premium on Bond payable	$44,024
	Loss on retirement of Bond	$50,076
	Cash		$10,19,100