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13eSolutionChap14

13eSolutionChap14 - Name Problem Course Date Solution P14-2...

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Problem 14-2 Solution, Page 1 of 8, 10/15/2010, 07:03:08 Name: Solution Problem: P14-2, Issuance and Retirement of Bonds Course: Date: Venzuela Co. is building a new hockey arena at a cost of \$2,500,000 It received a down payment 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 10.50% 10 -year bonds. These bonds were issued on January 1, 2009, and pay interest annually on each January 1. The bonds yield 10.00% Venzuela paid \$50,000 in bond issue costs related to the bond sale. Instructions: Present value of the principal for 10 periods at 10% Present value of principal formula = \$771,087 Present value of an annuity for 10 periods at 10% Present value of interest formula = \$1,290,359 Present selling value of the bonds = \$2,061,446 Jan 1, 09 Cash 2,011,446 Unamortized Bond Issue Costs 50,000 Bonds Payable 2,000,000 Premium Bonds Payable 61,446 Date Jan 1, 09 \$2,061,446 Jan 1, 10 \$210,000 \$206,145 \$3,855 2,057,590 Jan 1, 11 210,000 205,759 4,241 2,053,349 Jan 1, 12 210,000 205,335 4,665 2,048,684 Jan 1, 13 210,000 204,868 5,132 2,043,553 \$1,065,000 plus accrued interest. Prepare the journal entry to record this retirement. Note: Use of tables or financial calculators may result is slightly different values due to rounding and significant digits. (a) Prepare the journal entry to record the issuance of the bonds and the related bond issue costs incurred on January 1, 2009. (b) Prepare a bond amortization schedule up to and including January 1, 2013, using the effective interest method. Interest Paid Interest Expense Premium Amortization Bond Carrying Value (c) Assume that on July 1, 2012, Venzuela Co. retires half of the bonds at a cost of

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Problem 14-2 Solution, Page 2 of 8, 10/15/2010, 07:03:08 Name: Solution Problem: P14-2, Issuance and Retirement of Bonds Course: Date: Unamortized bond issue costs \$50,000
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13eSolutionChap14 - Name Problem Course Date Solution P14-2...

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