Question

Bonita Co. is building a new hockey arena at a cost of $2,620,000. It received a downpayment of $450,000 from local businesses to support the project, and now needs to borrow $2,170,000 to complete the project. It therefore decides to issue $2,170,000 of 11%, 10-year bonds. These bonds were issued on January 1, 2016, and pay interest annually on each January 1. The bonds yield 10%.

Assume that on July 1, 2019, Bonita Co. redeems half of the bonds at a cost of $1,139,500 plus accrued interest. Prepare the journal entry to record this redemption. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Journal entry to record this redemption of bonds is as shown below:

Year	Particulars	L.F	Debit ($)	Credit ($)
2019
Jul-01	Bonds payable		1,085,000
	Unamortized Bond Premium (11,135/2)		5,568
	Interest Expense (227,565/2)		113782.5
	Loss on redemption of bonds		48,933
	Cash			1,253,283
	(for bonds of 1,139,500 expensed)

Working:

	A	B	C	D	E
Semiannual Interest Period	Interest Paid	Bond Interest Expense	Premium Amortization	Unamortized premium	Carrying Value at end of period
	2,170,000*11%	E*10%	A-B	D-C	E-C
Jan 1 2016				$133,338	$2,303,338
Jan 1 2017	$238,700	$230,334	$8,366	$124,972	$2,294,972
Jan 1 2018	$238,700	$229,497	$9,203	$115,769	$2,285,769
Jan 1 2019	$238,700	$228,577	$10,123	$105,646	$2,275,646
4	$238,700	$227,565	$11,135	$94,510	$2,264,510
5	$238,700	$226,451	$12,249	$82,261	$2,252,261
6	$238,700	$225,226	$13,474	$68,787	$2,238,787
7	$238,700	$223,879	$14,821	$53,966	$2,223,966
8	$238,700	$222,397	$16,303	$37,663	$2,207,663
9	$238,700	$220,766	$17,934	$19,729	$2,189,729
10	$238,700	$218,973	$19,729	($0)	$2,170,000