Venezuela Co. is building a new hockey arena at a cost of $5,000,000 . It receiv

Question

Venezuela Co. is building a new hockey arena at a cost of $5,000,000 . It received a downpayment of $1,000,000 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 10.50% 10 -year bonds. These bonds were issued on January 1, 2016, and pay interest annually on each January 1. The bonds yield 10.00% . Venezuela paid $100,000 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, 2016.

(b) Prepare a bond amortization schedule up to and including January 1, 2020, using the effective
     interest method.

(b) Prepare a bond amortization schedule up to and including January 1, 2020, using the effective
     interest method.

(c) Assume that on July 1, 2019, Venzuela Co. retires half of the bonds at a cost of $2,095,000 plus accrued interest. Prepare the journal entry to record this retirement.

Explanation / Answer

a Issue price of the bond no of period 10 rate 10% PMT 420000 FV 4000000 PV $4,122,891.34 Journal Cash $4,122,891.34    To bonds payable 4000000    To premium on issue $122,891.34 b Amortisation table period interest payment interest expense(10%) amortisation of premium balance in premium face value book value $122,891.34 4000000 $4,122,891.34 2016 420000 $412,289.13 7711 115180 4000000 4115180 2017 420000 $411,518.05 8482 106699 4000000 4106699 2018 420000 $410,669.85 9330 97368 4000000 4097368 2019 420000 $409,736.84 10263 87105 4000000 4087105

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