Headland Co. is building a new hockey arena at a cost of $2,420,000. It received

Question

Headland Co. is building a new hockey arena at a cost of $2,420,000. It received a downpayment of $540,000 from local businesses to support the project, and now needs to borrow $1,880,000 to complete the project. It therefore decides to issue $1,880,000 of 11%, 10-year bonds. These bonds were issued on January 1, 2016, and pay interest annually on each January 1. The bonds yield 10%.

Prepare the journal entry to record the issuance of the bonds on January 1, 2016. (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.)

Prepare a bond amortization schedule up to and including January 1, 2020, using the effective interest method. (Round answers to 0 decimal places, e.g. 38,548.)

Assume that on July 1, 2019, Headland Co. redeems half of the bonds at a cost of $1,040,600 plus accrued interest. Prepare the journal entry to record this redemption. (Round answers to 0 decimal places, e.g. 38,548)

Explanation / Answer

Issue Price of bonds 1995512.276 (1880000*0.11*6.144567)+(1880000*0.38554) Date Account title and explanation Debit Credit 1-Jan-16 Cash 1995512 Bond Payable 1880000 Premium on bond 115512 semi-annual period end Cash Interest Bond Interest Premium Amortization Unamortized Premium Carrying value 1/1/2016 115512 1995512 1/1/2017 206800 199551 7249 108263 1988263 1/1/2018 206800 198826 7974 100290 1980290 1/1/2019 206800 198029 8771 91518 1971518 1/1/2020 206800 197152 9648 81870 1961870 Date Account title and explanation Debit Credit 1/7/2019 Interest expense 49288 Bond Payable 983347 Premium on Bond 45759 Gain on redemption 37794 Cash 1040600 (To record redemption)

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