Question

Flounder 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%.

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.) Date Account Titles and Explanation Debit Credit January 1, 2019

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 $1,057,800 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.) Date Account Titles and Explanation Debit Credit July 1, 2022 (To record interest) July 1, 2022 (To record reacquisition)

Answer 1

Journal Entry for issuance of bonds:

Date	Account title and explanation	Debit	Credit
January 1,2019	Cash	$2,085,785
	Bonds payable		$1,960,000
	Premium on bonds payable		$125,785
	[To record issuance of bonds]

Calculations:

Interest payment = $1,960,000 x 10% = $196,000

Present value of the interest payments	$1,257,861
[$196,000 x 6.41766 present value annuity factor (10%, 10 years)]
Present value of the face value	$827,924
[$1,960,000 x 0.42241 present value factor (10%, 10 years)]
Cash received	$2,085,785

Amortization Schedule:

Date	Cash Paid	Interest Expense	Premium Amortization	Carrying amount of Bonds
1/1/19				$2,085,785
1/1/20	$196,000	$187,721	$8,279	$2,077,506
1/1/21	$196,000	$186,976	$9,024	$2,068,481
1/1/22	$196,000	$186,163	$9,837	$2,058,644
1/1/23	$196,000	$185,278	$10,722	$2,047,922

Cash paid = Interest payment

Interest expense = Preceding carrying amount x 9%

Premium amortization = Cash paid - Interest expense

Carrying amount = Preceding carrying amount - Premium amortization

Journal Entry to record redemption:

Date	Account title and explanation	Debit	Credit
July 1,2022	Interest expense*	$46,319
	Premium on bonds payable	$2,681
	Cash**		$49,000
	[To record interest]
July 1,2022	Bonds payable (1,9600,000 x 1/2)	$980,000
	Premium on bonds payable (unamortized)***	$46,641
	Loss on redemption of bonds	$31,159
	Cash		$1,057,800
	[To record reacquistion]

Calculations:

i.*Interest expense = ($2,058,644 x 1/2) x 9% x 6/12 = $1,029,322 x 9% x 6/12 = $92,639 x 6/12 = $46,319

ii.**Cash = (1,960,000 x 1/2) x 10% x 6/12 = $980,000 x 10% x 6/12 = $98,000 x 6/12 = $49,000

iii.***Unamortized premium = Carrying value of the bonds redeemed - Face value of the bonds redeemed

= [(2,058,644 x 1/2)-2,681] - [1,9600,000 x 1/2] = $1,032,003 - $980,000 = $46,641