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nikitadnepr [17]
3 years ago
5

Windsor Co. is building a new hockey arena at a cost of $2,420,000. It received a down payment of $510,000 from local businesses

to support the project, and now needs to borrow $1,910,000 to complete the project. It therefore decided to issue $1,910,000 of 10%, 10-year bonds. These bonds were issued on January 1, 2019, and pay interest annually on each January 1. The bonds yield 9%.
Prepare the journal entry to record the issuance of the bonds on January 1, 2019.
Business
1 answer:
viktelen [127]3 years ago
3 0

Answer:

Dr    Cash   $2,032,577.26

Cr premium on bonds payable  $122,577.26  

Cr bonds payable                        $1,910,000

Explanation:

First and foremost the proceeds received from the bond issuance needs to determine the pv formula in excel as follows:

=-pv(rate,nper,pmt,fv)

rate is the yield  to maturity of 9%

nper is the number of annual coupons payable by the bond which is 10

pmt is the amount of annual coupon i.e  $1,910,000*10%=$191000

fv is the face value of the bond which is  $1,910,000

=-pv(9%,10,191000,1910000)=$2,032,577.26  

premium on bonds issuance= 2,032,577.26-1,910,000.00= $122,577.26  

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1. Prepare general journal entries to record these transactions using the following titles:

March 1

Dr Cash (101) 175,000

Dr Office Equipment (163) 26,000

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March 2

Dr Prepaid Rent (131) 6,000

    Cr Cash (101) 6,000

March 3

Dr Office Equipment (163) 3,800

Dr Office Supplies (124) 2,200

    Cr Accounts Payable (201) 6,000

March 6

Dr Cash (101) 4,500

    Cr Services Revenue (403) 4,500

March 9

Dr Accounts Receivable (106) 10,900

    Cr Services Revenue (403) 10,900

March 12

Dr Accounts Payable (201) 6,000

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March 19

Dr Prepaid Insurance (128) 6,400

    Cr Cash (101) 6,400

March 22

Dr Cash (101) 4,000

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March 25

Dr Accounts Receivable (106) 5,330

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March 29

Dr Dividends (319) 5,400

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March 30

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    Cr Accounts Payable (201) 1,700

March 31

Dr Utilities Expense (690) 1,400

    Cr Cash (101) 1,400

2. Post the journal entries from part 1 to the ledger accounts.

Account      Description                                  Debit         Credit

101               Cash                                           175,000

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                                                                          4,500

                                                                                           6,000

                                                                                           6,400

                                                                          4,000

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<u>                                                                                             1,400  </u>

101               Cash                                           158,300

106              Accounts Receivable                 10,900        

                                                                                           4,000

<u>                                                                          5,330                     </u>

106              Accounts Receivable                 12,330

124              Office Supplies                            2,200

<u>                                                                          1,700                        </u>

124              Office Supplies                            3,900

128              Prepaid Insurance                       6,400

131               Prepaid Rent                                 6,000

163              Office Equipment                        26,000

<u>                                                                            3,800                      </u>

163              Office Equipment                        29,800

201              Accounts Payable                                              6,000

                                                                           6,000

<u>                                                                                                 1,700    </u>

201              Accounts Payable                                               1,700

307             Common Stock                                               201,000

319              Dividends                                       5,400

403             Services Revenue                                              4,500

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403             Services Revenue                                             20,730

690             Utilities Expense                            1,400

3. Prepare a trial balance as of April 30.

Account      Description                                  Debit         Credit

101               Cash                                           158,300

106              Accounts Receivable                  10,900        

106              Accounts Receivable                  12,330

124              Office Supplies                             3,900

128              Prepaid Insurance                        6,400

131               Prepaid Rent                                 6,000

163              Office Equipment                        29,800

201              Accounts Payable                                               1,700

307             Common Stock                                               201,000

319              Dividends                                       5,400

                   Retained earnings                                             11,000

403             Services Revenue                                             20,730

690             Utilities Expense                            1,400

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TOTAL                                                           234,430       234,430                                              

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