Problem 142 Cullumber Co is building a new hockey arena at a

Problem 14-2 Cullumber Co. is building a new hockey arena at a cost of $2,660,000. It received a downpayment of $450,000 from local businesses to support the project, and now needs to borrow $2,210,000 to complete the project. It therefore decides to issue $2,210,000 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 LINK TO TEXT LINK TO TEXT 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 LINK TO TEXT Assume that on July 1, 2019, Cullumber Co. redeems half of the bonds at a cost of $1,172,400 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) Click if you would like to Show Work for this question: Open Show Work

Solution

(a) Journal entry to record the issuance of the bonds on January 1, 2016 $ Amount to be borrowed = $22,10,000 Present value of the principal for 10 periods at 11% Present value of principal formula(2210000*0.38554) = 852043 Present value of an annuity for 10 periods at 11% Present value of   interest formula = $14,93,744 Present selling value of the bonds = $23,45,787.00 Journal Entry 1-Jan-16 Cash $23,45,787 Bond Payable $22,10,000 Premium Bond Payable $1,35,787 (b) Bond amortization schedule Date Interest Paid Interest Expenses Premium Amortization Bond Carrying Value 1/1/2016 $23,45,787.00 1/1/2017 243100 234579 8521 2337266 1/1/2018 243100 233727 9373 2327893 1/1/2019 243100 232789 10311 2317582 1/1/2020 243100 231758 11342 2306240