Stellar Co. is building a new hockey arena at a cost of $2,690,000. It received a...

Stellar Co. is building a new hockey arena at a cost of $2,690,000. It received a downpayment of $550,000 from local businesses to support the project, and now needs to borrow $2,140,000 to complete the project. It therefore decides to issue $2,140,000 of 12%, 10-year bonds. These bonds were issued on January 1, 2016, and pay interest annually on each January 1. The bonds yield 11%

Prepare the journal entry to record the issuance of the bonds on January 1, 2016.

Prepare a bond amortization schedule up to and including January 1, 2020, using the effective interest method.

Assume that on July 1, 2019, Stellar Co. redeems half of the bonds at a cost of $1,173,900 plus accrued interest. Prepare the journal entry to record this redemption.

Solutions

Expert Solution

Par value of bonds			2140000
Cash interest paid			214000
Annuity PV for 10 years at 11%			5.8892
PVF for 10th year at 11%			0.35218

Present value f interest paid			1260289
Present value of Maturity value			753665.2
Issue price of bonds			2013954

Journal entry for issue:
Cash account Dr.			2013954
Discount on bonds payable Dr.			126046
Bonds payable account				2140000


Amort Chart
Date	Cash	Interest	Discount	Unamortized	Carrying value
	Interest	Expense	amortized	Discount	Bonds
01.01.16				126046	2,013,954
01.01.17	214000	221,535	7,535	118,511	2,021,489
01.01.18	214000	222,364	8,364	110,147	2,029,853
01.01.19	214000	223,284	9,284	100,863	2,039,137
01.01.20	214000	224305	10,305	90,558	2,049,442

Redemption of bonds on July1, 2019:
Interest cash to be paid (214000010%6/12*1/2): 53500
Discount amortized (103056/121/2): 2576

Bonds Par value to be redeemed:				1070000
	(2140000*1/2)
less: Unamortized discount				47855
	(100863*1/2 - 2576)
Carrying value of bonds on July1 2019				1022145
Redemption value of bonds				1173900
Loss on redemption f bonds				151755

Journal entries on redemption:
Date	Accounts title and explanations				Debit $	Credit $
01.07.19	Interest expense Dr.				56076
	Cash account					53500
	Discount on bonds payable					2576

01.07.19	Bonds payable Dr.				1070000
	Loss on redemption of bonds Dr.				151755
	Cash account					1173900
	Discount on bonds payable					47855

ekkarill92 answered 1 year ago

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