Kieso, Intermediate Accounting, 15e 14-2 Venezuela Co. is building a new hockey

Question

Kieso, Intermediate Accounting, 15e

14-2

Venezuela Co. is building a new hockey arena at a cost of $2,677,000. It received a downpayment of $519,200 from local businesses to support the project, and now needs to borrow $2,157,800 to complete the project. It therefore decides to issue $2,157,800 of 12%, 10 year bonds. These bonds were issued on January 1, 2013, and pay interest annually on each January 1. The bonds yield 11%. Venezuela paid $58,400 in bond issue costs related to the bond sale.

(a) Prepare the journal entry to record the issuance of the bonds and the related bond issue costs incurred on January 1, 2013.

(b) Prepare a bond amortization schedule up to and including January 1, 2017, using the effective interest method.

(c) Assume that on July 1, 2016, Venezuela Co. redeems half of the bonds at a cost of $1,151,110 plus accrued interest. Prepare the journal entry to record this redemption.

Kieso, Intermediate Accounting, 15e

Explanation / Answer

Journal entry to record the issuance of the bonds and the related bond issue costs incurred on January 1, 2013.

Working Note

First of all calculate present value of bond (b0)

(b)

Bond Amortization schedule

Date Account Title & Explanation Debit Credit Jan, 1 Cash:( 2284877.85-58400) 2226477.85 Unamortized Bond issue cost 58400 Bonds Payable 2157800 Premium on Bonds Payable 127077.85

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