Question - Issuance and Retirement of Bonds
Venzuela Co. is building a new hockey arena at a cost of $2,500,000. It received a downpayment of $500,000 from local businesses to support the project, and now needs to borrow $2,000,000 to complete the project. It therefore decides to issue $2,000,000 of 10.5%, 10-year bonds. These bonds were issued on January 1, 2009, and pay interest annually on each January 1. The bonds yield 10%. Venzuela paid $50,000 in bond issue costs related to the bond sale.
Instructions
(a) Prepare the journal entry to record the issuance of the bonds and the related bond issue costs incurred on January 1, 2009.
(b) Prepare a bond amortization schedule up to and including January 1, 2013, using the effective-interest method.
(c) Assume that on July 1, 2012, Venzuela Co. retires half of the bonds at a cost of $1,065,000 plus accrued interest. Prepare the journal entry to record this retirement.