P14-2 (Issuance and Retirement of Bonds) Venezuela Co. is building a new hockey

Question

P14-2 (Issuance and Retirement of Bonds) Venezuela Co. is building a new hockey arena at a cost of $2,500,000 . It received a downpayment of $500,000 from local businesses to support the project, and now needs to borrow $2,000,000 to complete the project. It therefore decides to issue $2,000,000 of 10.50% 10 -year bonds. These bonds were issued on January 1, 2013, and pay interest annually on each January 1. The bonds yield 10.00% . Venezuela paid $50,000 in bond issue costs related to the bond sale. "Note: Use of tables or financial calculators may result is slightly different values due to rounding and significant digits."

Explanation / Answer

a) present Value of principal for 10 year @ 10% Present value of principal formula 2000000/(1+0.1)^10 =                 771,087 Present value of Annuity for 10 years at 10% Present value fro interest formula =              1,290,359 Present Selling value of bonds =              2,061,446 Journal Entry Cash A/C dr.                   2,011,446 Unamortized bond issue Cost                        50,000 To Bonds Payable    2,000,000 To premium bonds payable         61,446 b Amortization Schedule Interest Paid Interest exp. Premium Amortization Bonds carrying value Jan-1 2013                2,061,446 Jan-1 2014                      210,000 206145 3855                2,057,591 Jan-1 2015                      210,000 205759 4241                2,053,350 Jan-1 2016                      210,000 205335 4665                2,048,685 Jan-1 2017                      210,000 204868 5132                2,043,553

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