Problem 1: (Issuance and Retirement of Bonds) Venezuela Co. is building a new hockey arena at the cost of 2,000,000.It received a down payment of 500,000 from local businesses to support the project,and now needs to borrow 2,000,000 to complete the project.It therefore decided to issue 2,000,000 of 10.5%,10 year bonds. These bonds were issue om Jan 1,2011 and pay interest annually on each Jan 1.The bonds yield 10% Venezula paid 50,000 in bond issue cost related to the bond sale.
INSTRUCTION:
(a) Prepare a journal entry to record the issuance of the bond and the related bond issue cost incurred on Jan 1,2012.
(b) Prepare a bond amortization schedule up to and including Jan 1 2015,using the effective interest method.
(c) Assume that on July 1,2014 ,Venezula Co. retires half of the bonds at a cost of 1,065,000 plus accrued interest .Prepare the journal entry to record this retirement.
Problem 2: (Comprehensive Bond Problem) In each of the following independent cases the company closes its books om Dec 31.
1. Sanford Co. sells 500,000 of 10% bonds on Mar 1,2012.The bonds pay interest on Sept 1 and Mar 1.The due date of the bonds id Sept 1,2015.The bonds yield 12%.Give entries Through December 31,2013.
2. Titania Co. sells 400,000 of 12% bonds on Jun 1,2012. The bonds pay interest on Dec 1 and Jun 1.The due date of the bonds is Jun 1,2016.The bonds yield 10% .On Oct 1,2013 ,titania buys back 120,000 worth of bonds for 126,000 (includes accrued interest). Give entries through Dec 1,2014
INSTRUCTION:
For the two cases prepare all of the relevant journal entries from the time of sale until the date indicated. Use the effective interest method for discount and premium amortization (construct amortization tables where applicable). Amortize premium or discount on interest date and at a year -end.(Assume that no reversing entries were made.)