................................................................. Problem 14-2 S
ID: 2565604 • Letter: #
Question
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Problem 14-2
Sage Co. is building a new hockey arena at a cost of $2,310,000. It received a downpayment of $490,000 from local businesses to support the project, and now needs to borrow $1,820,000 to complete the project. It therefore decides to issue $1,820,000 of 12%, 10-year bonds. These bonds were issued on January 1, 2016, and pay interest annually on each January 1. The bonds yield 11%.
[Partially correct answer.] Your answer is partially correct. Try again.
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.)
Date
Account Titles and Explanation
Debit
Credit
January 1, 2016
[Entry field with correct answer]
[Entry field with incorrect answer]
[Entry field with correct answer]
[Entry field with correct answer]
[Entry field with correct answer]
[Entry field with correct answer]
[Entry field with correct answer]
[Entry field with correct answer]
[Entry field with incorrect answer]
LINK TO TEXT
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[Incorrect answer.] Your answer is incorrect. Try again.
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.)
Date
Cash
Paid
Interest
Expense
Premium
Amortization
Carrying
Amount of
Bonds
1/1/16 $
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$
[Entry field with incorrect answer]
$
[Entry field with incorrect answer]
$
[Entry field with incorrect answer]
1/1/17
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
1/1/18
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
1/1/19
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
1/1/20
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
LINK TO TEXT
LINK TO TEXT
[Incorrect answer.] Your answer is incorrect. Try again.
Assume that on July 1, 2019, Sage Co. redeems half of the bonds at a cost of $1,001,900 plus accrued interest. Prepare the journal entry to record this redemption. (Round answers to 0 decimal places, e.g. 38,548. 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.)
Date
Account Titles and Explanation
Debit
Credit
July 1, 2019
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
(To record interest)
July 1, 2019
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
[Entry field with incorrect answer]
(To record reacquisition)
................................................................
Explanation / Answer
PVAF at 12% for 10 Year
1-(1+r)^-n / r
1-(1.11)^-10 / .11
.647/.11
5.88923
PVF at 12% at 10 year
1/(1+r)^n
1/1.11^10
0.352184
issue price or value of bond
interest*PVAF + face value*PVF
218400*5.889 23+ 1820000*.35218
1927175
interest =12% on face value
218400
face value
1820000
date
explanation
debit
credit
jan 1 2016
cash
1927175
bonds payable
1820000
premium on bonds payable
107175.4
DATE
CASH PAID = FACE VALUE*12%
INTEREST EXPENSE = CARRYING VALUE*EFFECTIVE RATE OF INTEREST
PREMIUM AMORTIZATION = INTEREST EXPENSE-CASH PAID
CARRYING VALUE OF PREMIUM IN BONDS PAYABLE = CARRYING VALUE-PREMIUM AMORTIZED
BONDS PAYABLE
CARRYING VALUE OF BONDS PAYABLE = BONDS PAYABLE+CARRYING VALUEOF PREMIUM ON BOND PAYABLE
JAN 1 2016
107175
1820000
1927175
JAN 1 2017
218400
211989.3
6410.702
100765
1820000
1920765
JAN 1 2018
218400
211284.1
7115.88
93649
1820000
1913649
JAN 1 2019
218400
210501.4
7898.627
85750
1820000
1905750
JAN 1 2020
218400
209632.5
8767.475
76983
1820000
1896983
July 1 2019
bonds payable
910000
interest expense
109200
premium on bonds payable
40683.24
gain on redemption of bonds payable
57983.24
cash
1001900
year end 2018 balance in premium on bonds payable
85750
less premium amortized for half year in 2019
8767.475/2
4383.738
balance in premium on bonds payable on july 1 2019
81366
amount of premium on bonds payble to be written off
81366/2
40683.24
PVAF at 12% for 10 Year
1-(1+r)^-n / r
1-(1.11)^-10 / .11
.647/.11
5.88923
PVF at 12% at 10 year
1/(1+r)^n
1/1.11^10
0.352184
issue price or value of bond
interest*PVAF + face value*PVF
218400*5.889 23+ 1820000*.35218
1927175
interest =12% on face value
218400
face value
1820000
date
explanation
debit
credit
jan 1 2016
cash
1927175
bonds payable
1820000
premium on bonds payable
107175.4
DATE
CASH PAID = FACE VALUE*12%
INTEREST EXPENSE = CARRYING VALUE*EFFECTIVE RATE OF INTEREST
PREMIUM AMORTIZATION = INTEREST EXPENSE-CASH PAID
CARRYING VALUE OF PREMIUM IN BONDS PAYABLE = CARRYING VALUE-PREMIUM AMORTIZED
BONDS PAYABLE
CARRYING VALUE OF BONDS PAYABLE = BONDS PAYABLE+CARRYING VALUEOF PREMIUM ON BOND PAYABLE
JAN 1 2016
107175
1820000
1927175
JAN 1 2017
218400
211989.3
6410.702
100765
1820000
1920765
JAN 1 2018
218400
211284.1
7115.88
93649
1820000
1913649
JAN 1 2019
218400
210501.4
7898.627
85750
1820000
1905750
JAN 1 2020
218400
209632.5
8767.475
76983
1820000
1896983
July 1 2019
bonds payable
910000
interest expense
109200
premium on bonds payable
40683.24
gain on redemption of bonds payable
57983.24
cash
1001900
year end 2018 balance in premium on bonds payable
85750
less premium amortized for half year in 2019
8767.475/2
4383.738
balance in premium on bonds payable on july 1 2019
81366
amount of premium on bonds payble to be written off
81366/2
40683.24
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