Question

Vaughn Co. is building a new hockey arena at a cost of $2,560,000. It received a...

Vaughn Co. is building a new hockey arena at a cost of $2,560,000. It received a downpayment of $450,000 from local businesses to support the project, and now needs to borrow $2,110,000 to complete the project. It therefore decides to issue $2,110,000 of 12%, 10-year bonds. These bonds were issued on January 1, 2016, and pay interest annually on each January 1. The bonds yield 11%. Assume that on July 1, 2019, Vaughn Co. redeems half of the bonds at a cost of $1,110,800 plus accrued interest. Prepare the journal entry to record this redemption.

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Answer #1

Carrying amount of Bond on 1/1/19

2209429

Less: amortization of Bonds premium

5082

10163*6/12

Carrying amount on 7/1/2019

2204347

Redemption price

1110800

Half of it is redeemed

1102174

-2204347

Loss

8626

Journal entry

Interest entry

Dr

Cr

Interest expenses

$124,059

Premium on Bonds payable (10163*1/12*12)

2541

Interest payable

126600

On 07/01/2019

Bonds payable

$1,055,000

Premium on Bonds payable

47174

Loss on Redemption of Bonds

8626

Cash

1110800

Premium on Bonds payable - (2204347-2110000)*1/2 = 47173.5

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