Venezuela Co. is building a new hockey arena at a cost of $4,000,000 . It received a
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| Venezuela Co. is building a new hockey arena at a | ||||||
| cost of | $4,000,000 | . It received a downpayment of | $1,000,000 | from local | ||
| businesses to support the project, and now needs to borrow | $3,000,000 | to complete | ||||
| the project. It therefore decides to issue | $3,000,000 | of | 10.50% | 10 | ||
| -year bonds. These bonds were issued on January 1, 2017, and pay interest annually on each | ||||||
| January 1. The bonds yield | 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, 2017. | ||||||
| Jan 1, 17 | ||||||
| Present value of principal formula = | ||||||
| Present value of interest formula = | ||||||
| Present selling value of the bonds = | ||||||
| Jan 1, 17 | ||||||
| (b) Prepare a bond amortization schedule up to and including January 1, 2021, using the effective interest method. | ||||||
| Date | Interest Paid | Interest Expense | Premium Amortization | Bond Carrying Value | ||
| Jan 1, 17 | ||||||
| Jan 1, 18 | ||||||
| Jan 1, 19 | ||||||
| Jan 1, 20 | ||||||
| Jan 1, 21 | ||||||
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