Pearl Co. is building a new hockey arena at a cost of $2,750,000. It received a

Question

Pearl Co. is building a new hockey arena at a cost of $2,750,000. It received a downpayment of $470,000 from local businesses to support the project, and now needs to borrow $2,280,000 to complete the project. It therefore decides to issue $2,280,000 of 10%, 10-year bonds. These bonds were issued on January 1, 2016, and pay interest annually on each January 1. The bonds yield 9%. Assume that on July 1, 2019, Pearl Co. redeems half of the bonds at a cost of $1,222,500 plus accrued interest. Prepare the journal entry to record this redemption.

Explanation / Answer

Issue price = [PVA9%,10*Interest]+[PVF9%,10*Face value]

             =[6.41766*228,000]+ [.42241*2280000]

            = 1463226.48+ 963094.8

            = 2,426,321

Premium on bond payable = 2426321-2280000= 146321

on july1 2019,6 months interest is accrued from 1 jan 2019-1 july 2019

Interest = 2280000*.10=228000

loss = 1222500-54256.49-1140000=28243.51

Date Beginning carrying value Interest paid iNterest expense premium amortised Unamortised premium carrying value at end 1 jan 2016 146321 2426321 1 jann 2017 2426321 228000 218368.89   [2426321*.09] 9631.11 146321--9631.11= 136689.89 2416689.89   [2426321-9631.11] 2018 2416689.89 228000 217502.09 10497.91 136689.89-10497.91= 126191.98 2406191.98 [2416689.89-10497.91] 2019 2406191.98 228000 216557.28 11442.72 126191.98-11442.72= 114749.26 2394749.26 1 july 2019 2394749.26 114000 [228000*6/12] 107763.72   [2394749.26*.09*6/12] 6236.28 108512.98    [114749.26-6236.28] 2388512.98

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.