Question

Continental Company is building a new hockey arena at a cost of $2,500,000. It received a downpayment of $500,000 from local businesses to support the project and now needs to borrow $2,000,000 to complete the project. It therefore decides to issue $2,000,000 of 11%, callable, 10-year bonds. These bonds were issued on January 2018 and pay interest on January 1 and July 1. The bonds yield 10%.
Required:
a. Prepare the journal entry to record the issuance of the bonds on January 1, 2018
b. Prepare a bond amortixation schedule up to and including January 1, 2022
c. Prepare the journal entries to record the interest payments on January 1, 2020 and January 1, 2021.
d. Prepare the journal entry to record the bond called on January 2021

Answer 1

Answer:

(a). Date: January 1, 2018.

Account description( Debit) :

(1). cash( face value of bond + interest) = $2,124,622( 753779 + 1370843).

Account description (credit):

(2). Premium on issue of bonds( issue price of bond - (face value of bond )  =$124,622( $2,124,622 - 2,000,000).

(3). Bond payable: Bond payable =face value of bond = #2,000,000.

(b). Check attachment.

(c).

Date: January 1, 2020.

Account description (debit) :

(1). Interest expense= $105,637.

(2). Premium on issue of bonds = $ 4,363.

Account description (credit):

(3) cash = $110,000.

Date: January 1, 2021.

Account description (debit) :

(1). Interest expense= $105,190.

(2). Premium on issue of bonds = $ 4,810.

Account description (credit):

(3) cash = $110,000.

(d). Date: January 1, 2021.

Account description (debit) :

(1). Bond payable= $2,000,000.

(2). Premium on issue of bonds = $98,986.

(3). Loss on redemption of bonds =$21014.

Account description (credit):

(4) cash = $2,120,000.

Explanation:

So, we are given the following data or information which is going to help us in preparing the journals from "a" to "d".

=> The new hockey arena cost

=  $2,500,000.

=> " The downpayment of $500,000 from local businesses to support the project and now needs to borrow $2,000,000 to complete the project."

=> *It therefore decides to issue $2,000,000 of 11%."

So, let us go down in solving these question.

(a). The journal entry to record the issuance of the bonds on January 1, 2018;

Date: January 1, 2018.

Account description( Debit) :

(1). cash( face value of bond + interest) = $2,124,622( 753779 + 1370843).

Account description (credit):

(2). Premium on issue of bonds( issue price of bond - (face value of bond )  =$124,622( $2,124,622 - 2,000,000)..

(3). Bond payable: Bond payable =face value of bond = #2,000,000.

(b). Check the attached picture below.

(c).

Date: January 1, 2020.

Account description (debit) :

(1). Interest expense= $105,637.

(2). Premium on issue of bonds = $ 4,363.

Account description (credit):

(3) cash = $110,000.

Date: January 1, 2021.

Account description (debit) :

(1). Interest expense= $105,190.

(2). Premium on issue of bonds = $ 4,810.

Account description (credit):

(3) cash = $110,000.

(d).Date: January 1, 2020.

Account description (debit) :

(1). Interest expense= $105,637.

(2). Premium on issue of bonds = $ 4,363.

Account description (credit):

(3) cash = $110,000.

(d). Date: January 1, 2021.

Account description (debit) :

(1). Bond payable= $2,000,000.

(2). Premium on issue of bonds = $98,986.

(3). Loss on redemption of bonds =$21014(carrying value bond - redemption value).

Account description (credit):

(4) cash = $2,120,000(106% of $2,000,000).