Question

Problem 14-2 Cullumber Co. is building a new hockey arena at a cost of $2,660,000. It received a downpayment of $450,000 from local businesses to support the project, and now needs to borrow $2,210,000 to complete the project. It therefore decides to issue $2,210,000 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%. Prepare the journal entry to record the issuance of the bonds on January 1, 2016. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to 0 decimal places e.g. 58,971. 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.) Date Account Titles and Explanation Debit Credit January 1, 2016 SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT Prepare a bond amortization schedule up to and including January 1, 2020, using the effective interest method. (Round answers to 0 decimal places, e.g. 38,548.) Date Cash Paid Interest Expense Premium Amortization Carrying Amount of Bonds 1/1/16 $ $ $ $ 1/1/17 1/1/18 1/1/19 1/1/20 SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT Assume that on July 1, 2019, Cullumber Co. redeems half of the bonds at a cost of $1,172,400 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.) Date Account Titles and Explanation Debit Credit July 1, 2019 (To record interest) July 1, 2019 (To record reacquisition) Click if you would like to Show Work for this question: Open Show Work

Answer 1

(a)	Journal entry to record the issuance of the bonds on January 1, 2016
							$
	Amount to be borrowed					=	$22,10,000
	Present value of the principal for 10 periods at 11%
	Present value of principal formula(2210000*0.38554)					=	852043
	Present value of an annuity for 10 periods at 11%
	Present value of   interest formula					=	$14,93,744
	Present selling value of the bonds					=	$23,45,787.00
	Journal Entry
	1-Jan-16	Cash					$23,45,787
			Bond Payable					$22,10,000
			Premium Bond Payable					$1,35,787
(b)	Bond amortization schedule
	Date	Interest Paid	Interest Expenses	Premium Amortization	Bond Carrying Value
	1/1/2016				$23,45,787.00
	1/1/2017	243100	234579	8521	2337266
	1/1/2018	243100	233727	9373	2327893
	1/1/2019	243100	232789	10311	2317582
	1/1/2020	243100	231758	11342	2306240