To complete a new hockey arena, Venezuela Co. needs to borrow $2,000,000. It the
ID: 2477951 • Letter: T
Question
To complete a new hockey arena, Venezuela Co. needs to borrow $2,000,000. It therefore decides to issue $2,000,000 of 10.5%, 10 year bonds. These bonds were issued on Jan 1, 2016, and pay interest semiannually, on each June 30 and Dec 31. The bond yield 10%. Venezuela paid $50,000 in bond issue costs related to the bond sale. Venezuela uses effective interest methof for interest expense, and straight line for bond issue costs.
1. Prepare journal entry to record the issuance of the bonds and the related bond issue costs incurred on Jan 1, 2016. (2 decimal point)
2. Prepare a bon amortization schedule up to and including Dec 31,2017, using effective interest method
3. Assume that on Oct 1,2017, Venezuela Co. redeems $500,000 of the bonds at the cost of $528,000 plus accured interest. Prepar the journal to record this redemption. Show all of your work, Hint: you should know the ending balance of discount (or premium) on bonds and bond issue cost right before this redemption
Explanation / Answer
Jan-01 Cash A/C dr. 2,000,000 To Bond payable A/C 2,000,000 Jan-01 Expense on bond issue 50,000 To Cash 50,000 Amortization Schedule Interest Payment Debit Interest Exp. Credit Bond Expens Debit balance in Bond expenses Credit balanc ein bond payable Book Value of the bond Jan-16 50,000 2,000,000 1,950,000 Jun-16 105,000 107,500 2,500 47,500 2,000,000 1,902,500 Dec-16 105,000 105,000 2,500 45,000 2,000,000 1,857,500 Jan-17 105,000 105,000 2,500 42,500 2,000,000 1,815,000 Dec-17 105,000 105,000 2,500 40,000 2,000,000 1,775,000
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