Question

Problem 14-2

Pronghorn Co. is building a new hockey arena at a cost of $2,360,000. It received a downpayment of $510,000 from local businesses to support the project, and now needs to borrow $1,850,000 to complete the project. It therefore decides to issue $1,850,000 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

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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

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Assume that on July 1, 2019, Pronghorn Co. redeems half of the bonds at a cost of $1,014,800 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)

Answer 1

The company decides to issue $1,850,000 of 11%, 10-year bonds, these bonds pay interest annually.

Present value of principal = $1,850,000 * 0.38554 = $713,249

Present value of Interest = 203,500 * 6.14457 = 1,250,420

Cash                                1,850,000

Bonds Payable                               1,850,000

Bonds Interest Expense      203,500

Interest Payable                      203,500

Date               Interest Paid                   Interest Expense Bond Carrying Value

Jan1 17          1,850,000

Jan1 18            203500                               203500                         1,850,000

More information is needed as to whether the bonds were issued at a discount or were issued at a premium to give more answers.