Problem 144 Tamarisk Inc is building a new hockey arena at a

Problem 14-4 Tamarisk Inc. is building a new hockey arena at a cost of $2,850,000. It received a down payment of $570,000 from local businesses to support the project, and now needs to borrow $2,280,000 to complete the project. It therefore decides to issue $2,280,000 of 10-year, 10.50% bonds. These bonds were issued on January 1, 2017 and pay interest annually on each January 1, The bonds yield 10% to the investor and have an effective interest rate to the issuer of 10.4053%. (There is an increased effective interest rate due to the capitalization of the bond issue costs.) Any additional funds that are needed to complete the project will be obtained from local businesses. Tamarisk Inc. paid and capitalized $57,000 in bond issuance costs related to the bond issue. Tamarisk prepares financial statements in accordance with IFRS Click here to view the factor table. Using time value of money tables, a financial calculator, and computer spreadsheet functions, calculate the value of the bonds and prepare the journal entry to record the issuance of the bonds on January 1, 2017. (For the journal entry, use the amount arrived at using the time value of money tables.) (For calculation purposes, use 5 decimal places as displayed in the factor table provided and final answers to O decimal places, e.g. 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select No Entry for the account tities and enter O for the amounts.) Prepare a bond amortization schedule up to and including January 1, 2022 using the effective interest method. (Round answers to O decimal places, e.g. S,275.) Assume that on July 1, 2020, the company retires half of the bonds at a cost of $1,214,000 plus accrued interest. Prepare the journal entries to record this retirement. (Round answer to O decimal places, e.g 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select \"No Entry for the account titles and enter 0 for the

Solution

Face value of bond

2280000

Interest

239400

Year

Interest

Principal

PV factor @10.5%

Present value

0

239400

1

239400

1

239400

0.90498

216652

2

239400

0.81898

196065

3

239400

0.74116

177434

4

239400

0.67073

160574

5

239400

0.607

145316

6

239400

0.54932

131507

7

239400

0.49712

119011

8

239400

0.44989

107703

9

239400

0.40714

97468.4

10

2280000

0.36845

840063

Value of the bond

2431193

Journal entries

Date

Particulars

Debit ($)

Credit ($)

01-Jan-17

Bank A/c

2280000

Discount on bond

151193

To, 10.50% Bond

2431193

(Being 10.5% bond issued)

Year

Interest

Principal

PV factor @10.5%

Present value

0

239400

1

239400

1

239400

0.90575

216837

2

239400

0.82039

196401

3

239400

0.74307

177891

4

239400

0.67304

161126

5

239400

0.60961

145940

6

239400

0.55215

132186

7

239400

0.50012

119728

8

239400

0.45298

108444

9

239400

0.41029

98223.4

10

2280000

0.37162

847297

Value of the bond

7.03902

2443473

Discount on bond

163473

Date

Cash payment

Interest

Discount amortization

Carrying amount of bond

01-01-17

239400

239400

16347.3

2427126

01-01-18

239400

239400

16347.3

2410778

01-01-19

239400

239400

16347.3

2394431

01-01-20

239400

239400

16347.3

2378084

01-01-21

239400

239400

16347.3

2361737

01-01-22

239400

239400

16347.3

2345389

Journal entries

Date

Particulars

Debit ($)

Credit ($)

10.5% Bond

1189042

Interest

119700

Bank

1333700

(being bond repaid)

Profit and loss A/c

168742

Interest

119700

Discount on bond

49041.9

(being discount and interest adjusted against profit and loss

Face value of bond	2280000
Interest	239400
Year	Interest	Principal	PV factor @10.5%	Present value
0	239400		1	239400
1	239400		0.90498	216652
2	239400		0.81898	196065
3	239400		0.74116	177434
4	239400		0.67073	160574
5	239400		0.607	145316
6	239400		0.54932	131507
7	239400		0.49712	119011
8	239400		0.44989	107703
9	239400		0.40714	97468.4
10		2280000	0.36845	840063
Value of the bond	2431193
Journal entries
Date	Particulars	Debit ($)	Credit ($)
01-Jan-17	Bank A/c	2280000
	Discount on bond	151193
	To, 10.50% Bond	2431193
	(Being 10.5% bond issued)