Venezuela Co. is building a new hockey arena at a cost of $8,000,000 . It received a downpayment of $4,000,000...
| Venezuela Co. is building a new hockey arena at a | ||||||
| cost of | $8,000,000 | . It received a downpayment of | $4,000,000 | from local | ||
| businesses to support the project, and now needs to borrow | $4,000,000 | to complete | ||||
| the project. It therefore decides to issue | $4,000,000 | of | 10.00% | 10 | ||
| -year bonds. These bonds were issued on January 1, 2018, and pay interest annually on each | ||||||
| January 1. The bonds yield | 8.00% | . | ||||
| . | ||||||
| Instructions: | ||||||
|
(a) Prepare the journal entry to record the issuance of the
bonds and the related bond issue costs incurred on January 1, 2018. |
||||||
| Cash | ||||||
| Unamortized Bond Issue Cost | ||||||
| Bonds Payable | ||||||
| Premium on Bonds Payable | ||||||
|
(b) Prepare a bond amortization schedule up to and
including January 1, 2021, using the effective interest method. |
||||||
| Date |
Interest Paid |
Interest Expense |
Premium Amortization |
Bond Carrying Value |
||
| Jan 1, 18 | ||||||
| Jan 1, 19 | ||||||
| Jan 1, 20 | ||||||
| Jan 1, 21 | ||||||
| (c) Assume that on Jan 2, 2021, Venzuela Co. retires half of the bonds at a cost of | $2,215,000 | |||||
| plus accrued interest. Prepare the journal entry to record this retirement. | ||||||
| Entry for reacquisition | ||||||
Homework Answers
| (a) Prepare the journal entry to record the issuance of the bonds and the related bond issue costs incurred on January 1, 2013. | ||||
| Account Titles and Explanation | Debit | Credit | ||
| Cash | $4,536,806.51 | |||
| Unamortized Bond issue Costs | 0 | |||
| Bonds Payable | $4,000,000. | |||
| Premium Bonds Payable | $536,806.51 | |||
| Present value of the principal | ||||
| Present value of the interest payments | ||||
| Present value (selling price of the bonds) | ||||
| Face Value (FV) | $4,000,000. | |||
| Coupon Rate | 10.00% | |||
| PMT | $400,000. | |||
| Nper | 10 | years | ||
| Rate | 8.00% | |||
| Current price (PV) PV(10%,10,-210,000,2,000,000) | $4,536,806.51 | |||
| Less: Bonds Payable | -$4,000,000. | |||
| Premium Bonds Payable | $536,806.51 | |||
| (b) Prepare a bond amortization schedule up to and including January 1, 2017, using the effective interest method. (Round answers to 0 decimal places, e.g. 38,548.) | ||||
| Date | Cash Paid | Interest Expenses | Premium Amortization | Bond Carrying Value |
| Jan 1, 2018 | $4,536,806.51 | |||
| Jan 1, 2019 | $400,000. | $362,944.52 | $37,055.48 | $4,499,751.03 |
| Jan 1, 2020 | $400,000. | $359,980.08 | $40,019.92 | $4,459,731.12 |
| Jan 1, 2021 | $400,000. | $356,778.49 | $43,221.51 | $4,416,509.6 |
| Jan 1, 2022 | $400,000. | $353,320.77 | $46,679.23 | $4,369,830.37 |
| c) | ||||
| Carrying value as of January 1, 2021 | $4,416,509.6 | |||
| Amortization of bond premium | $23,339.62 | |||
| Carrying value as of July 1, 2021 | $4,393,169.99 | |||
| Percentage of bonds to be retired in the year | 50.00% | |||
| Carrying amount as of July 1, 2021 to be retired | $2,196,584.99 | |||
| Reacquisition price | $2,215,000.00 | |||
| Loss on redemption of bonds | -$18,415.01 | |||
| d) | ||||
| Entry to pay accrued interest | ||||
| Interest Expense | $88,330.19 | |||
| Premium on Bonds Payable | $11,669.81 | |||
| Cash | $100,000. | |||
| e) | ||||
| Bonds Payable | $2,000,000.00 | |||
| Premium on Bonds Payable | $196,584.99 | |||
| Loss on redemption of bonds | $18,415.01 | |||
| Cash | $2,215,000.00 | |||
Add Answer to:
Venezuela Co. is building a new hockey arena at a cost of $8,000,000 . It received a downpayment of $4,000,000...
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Venezuela Co. is building a new hockey arena at a cost of
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businesses to support the project, and now needs to borrow
$2,000,000 to complete the project. It therefore decides to issue
$2,000,000 of 10.5%, 10-year bonds. These bonds were issued on
January 1, 2019, and pay interest annually on each January 1. The
bonds yield 10%.
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Accumulated Depreciation-Equipment
Accumulated Depreciation-Machinery
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