Question

Cheyenne Co. is building a new hockey arena at a cost of $2,560,000. It received a downpayment of $450,000 from local businesses to support the project, and now needs to borrow $2,110,000 to complete the project. It therefore decides to issue $2,110,000 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. (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.)

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.)

Assume that on July 1, 2019, Cheyenne Co. redeems half of the bonds at a cost of $1,110,800 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.)

Answer 1

Requirement 1
	Date	Account Title & Explanation		Debit	Credit
				Amount in $	Amount in $
	January 01, 2016	Cash		2234262.80
			Bonds payable		2110000.00
			Premium On Bonds		124262.80
		To record the issuance of bonds
Requirement 2			Bonds Amortization Schedule using effective interest method
			Year	Cashflows	PVIF@11%	Present Value of Bonds	Effective Interest	Amortized Premium	Carrying Value of Bonds
			January 1, 2016	-2110000	1			124262.7954	2234262.795
			January 1, 2017	253200	0.900900901	228108.1081	245768.9075	116831.7029	2226831.703
			January 1, 2018	253200	0.811622433	205502.8001	244951.4873	108583.1903	2218583.19
			January 1, 2019	253200	0.731191381	185137.6577	244044.1509	99427.34118	2209427.341
			January 1, 2020	253200	0.658730974	166790.6827	243037.0075	89264.34871	2199264.349
			January 1, 2021	253200	0.593451328	150261.8763	241919.0784	77983.42707	2187983.427
			January 1, 2022	253200	0.534640836	135371.0597	240678.177	65461.60405	2175461.604
			January 1, 2023	253200	0.481658411	121955.9096	239300.7764	51562.3805	2161562.38
			January 1, 2024	253200	0.433926496	109870.1889	237771.8619	36134.24235	2146134.242
			January 1, 2025	253200	0.390924771	98982.15213	236074.7667	19009.00901	2129009.009
			January 1, 2026	253200	0.352184479	89173.11003	234190.991	0	2110000
			January 1, 2026	2110000	0.352184479	743109.2502
			Total Present Value			2234262.795
Requirement 3
	Date	Account Title & Explanation		Debit	Credit
				Amount in $	Amount in $
	July 01, 2019	Interest expense		121518.50		=243037*6/12
		Premium on Bonds		5081.50		Balancing
			Cash		126600	=253200*6/12
		To record the Payment of accrued interest
	July 01, 2019	Bonds payable		1055000.00		=2110000*1/2
		Premium on Bonds		47172.92		=(99427.34-5081.5)*1/2
		Discount/Loss on redemption of Bonds		8627.08		Balancing amount to be charged to Income Statement
			Cash		1110800.00	Redemption Amount