Venezuela Co. is building a new hockey arena at a cost of $2,527,000. It receive
ID: 2456815 • Letter: V
Question
Venezuela Co. is building a new hockey arena at a cost of $2,527,000. It received a downpayment of $515,000 from local businesses to support the project, and now needs to borrow $2,012,000 to complete the project. It therefore decides to issue $2,012,000 of 11%, 10 year bonds. These bonds were issued on January 1, 2013, and pay interest annually on each January 1. The bonds yield 10%. Venezuela paid $69,800 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. (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
January 1, 2013
(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
Expense
Premium
Amortization
Carrying
Amount of
Bonds
(c) Assume that on July 1, 2016, Venezuela Co. redeems half of the bonds at a cost of $1,086,610 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, 2016
(To record interest.)
July 1, 2016
(To record reacquisition.)
Date
Account Titles and Explanation
Debit
Credit
January 1, 2013
Explanation / Answer
Present Value of Bond = Present Value of Bonds interest payments + Present Value of bond's maturity amount
= 221320 * Cumulative PVF @ 10% for 10 years + 2012000 * PVF for 10th year @ 10%
= (223120 * 6.145) + (2012000* 0.386)
= $2147704
Premium on bonds = 2147704 - 2012000
= $135704
a. Journal for bond issuance:
b.
Bond Amortisation Schedule
Interest expense
Gx10%
Amortization of
Bond Premium
C-B
Credit Balance
in Bonds Preimum
Account
Credit Balance
in Bonds Payable
Account
Book Value of the Bonds
F+E
Date Particulars Debit Credit Jan 1, 2013 Bank 2147704 Bonds Payable 2012000 Premium on bonds payable 135704 Jann 1, 2013 Bond Issue Cost 69800 Bank 69800Related Questions
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