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Issuance and Redemption of Bonds 356 Co. is building a new classroom arena (with heating and AIR). Information concerning the arena follows. Cost of arena
Issuance and Redemption of Bonds | ||||||||
356 Co. is building a new classroom arena (with heating and AIR). Information concerning the arena follows. | ||||||||
Cost of arena | $ 2,500,000 | |||||||
Down payment received from local businesses to support the project | 500,000 | |||||||
Borrowing needed to complete the project | 2,000,000 | |||||||
Issuance of bonds on January 1, 2016 | 2,000,000 | |||||||
Interest is paid annually on January 2. | ||||||||
Stated interest rate on bonds | 10.50% | |||||||
Term of bonds in years | 10 | |||||||
Yield on bonds | 10.00% |
Instructions: | ||||||||
(a) | Prepare the journal entry to record the issuance of the bonds and the related bond issue costs incurred on January 1, 2016. | |||||||
Present value of the bonds using Excel PV function: |
(b) | Prepare a bond amortization schedule up to and including January 1, 2020, using the effective interest method. | |||||||
(c) | Assume that on July 1, 2019, Venezuela Co. retires half of the bonds at a cost of $1,065,000 plus accrued interest. Prepare the journal entry to record this redemption. | |||||||
-entry to pay accrued interest
-entry for redemption
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