Question

from local to complete Venezuela Co. is building a new hockey arena at a cost of $8,000,000 It received a downpayment of $4,000,000 businesses to support the project, and now needs to borrow $4,000,000 the project. It therefore decides to issue $4,000,000 of 10.00% -year bonds. These bonds were issued on January 1, 2018, and pay interest annually on each January 1. The bonds yield 8.00% 0 Instructions: 1 (a) Prepare the journal entry to record the issuance of the bonds and the related bond issue costs incurred on January 1, 2018 TE EEEEE 2 (b) Prepare a bond amortization schedule up to and including January 1, 2021 using the wall

Answer 1

Solution a:

Computation of bond price
Table values are based on:
n=	10
i=	8.00%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.46319	$4,000,000.00	$1,852,760
Interest (Annuity)	6.71008	$400,000.00	$2,684,032
Price of bonds			$4,536,792

Solution b:

Bond Amortization Schedule - Effective interest method
Date	Cash Paid	Interest Expense	Premium Amortized	Unamortized Premium	Carrying Value
1-Jan-18				$536,792	$4,536,792
1-Jan-19	$400,000	$362,943	$37,057	$499,735	$4,499,735
1-Jan-20	$400,000	$359,979	$40,021	$459,714	$4,459,714
1-Jan-21	$400,000	$356,777	$43,223	$416,491	$4,416,491