Question

Flounder Co. is building a new hockey arena at a cost of $2,550,000. It received a downpayment of $450,000 from local businesses to support the project, and now needs to borrow $2,100,000 to complete the project. It therefore decides to issue $2,100,000 of 11%, 10-year bonds. These bonds were issued on January 1, 2019, and pay interest annually on each January 1. The bonds yield 10%.

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 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Prepare a bond amortization schedule up to and including January 1, 2023, using the effective interest method. (Round answers to 0 decimal places, e.g. 38,548.)

Date		Cash Paid		Interest Expense		Premium Amortization		Carrying Amount of Bonds
1/1/19		$		$		$		$
1/1/20
1/1/21
1/1/22
1/1/23

Assume that on July 1, 2022, Flounder Co. redeems half of the bonds at a cost of $1,116,500 plus accrued interest. Prepare the journal entry to record this redemption. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Working notes: Based on PV table Amount PV factor at 6% 0.38554 6.14457 Face value $2,100,000 Cash interest $231,000 Issue price of Bond Face value of Bond Premium on issue of bonds PV of Cash flows $809,641 $1,419,395 $2,229,036 $2,100,000 $129,036 Cash interest at 11% on $2,100,000 a) Date Credit Debit $2,229,036 Jan 1, 2019 Account Titles and Explanation Cash Premium on bonds payable Bond payable (To record issue of bonds) $129,036 $2,100,000 b) Amortization table Effective-Interest Method Interest Premium Interest Paid expense Amortization Cash Date 1/1/19 1/1/20 1/1/21 1/1/22 1/1/23 $231,000 $231,000 $231,000 $231,000 $222,904 $222,094 $221,203 $220,224 $8,096 $8,906 $9,797 $10,776 Carrying value $2,229,036 $2,220,940 $2,212,033 $2,202,237 $2,191,460 Working notes: Carrying amount of bond Less: Premium amortised Carrying amount of bond $2,202,237 January 1st, 2022 $4,898 $9,797/2 for 6 months $2,197,338 July 1st, 2022 50% redeemed - Carrying value Redemption value Loss on redemption (Redemption value-Carrying value) $1,098,669 50% of $2,197,338 $1,116,500 $17,831 Credit 50% of $2,100,000 Date Account Titles and Explanation July 1, 2022 Bond payable Loss on redemption of bond Premium on bonds payable Cash (To record redemption of bonds) Debit $1,050,000 $17,831 $48,669 $1,116,500