Chapter 14 -Long term Liabilities

Problem 14-2

(Issuance and Redemption of bonds) Venezuela Co. is building a new hockey arena at a cost of $2,500,000. It received a down payment of $50,000 from local businesses to support the project, and now needs to borrow $2000,000 to complete the project. It therefore decides to issue $2000,000 of 10.5%, 10-year bonds. These bonds were issued on January 1, 2016 and pay interest annually on each January 1. The bond yield 10%.

Instructions: a) prepare a journal entry to record the issuance of bonds on January 1. 2016

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

c) Assume that on July 1, 2019, Venezuela Co. redeems half of the bonds at a cost of $1,065,000plus the accrued interest. Prepare the journal entry to record this redemption.