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Bonita Co. is building a new hockey arena at a cost of $2,620,000. It received a...

Bonita Co. is building a new hockey arena at a cost of $2,620,000. It received a downpayment of $450,000 from local businesses to support the project, and now needs to borrow $2,170,000 to complete the project. It therefore decides to issue $2,170,000 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.

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Answer #1
Date Account Titles Debit Credit
January 1 Cash 2303331
      Bonds payable 2170000
      Premium on Bonds payable 133331
Workings:
Amount PV factor 10% Present value
Semi-annual interest 238700 6.14457 1466709
Principal 2170000 0.38554 836622
Total 2303331
Semi-annual interest 238700 =2170000*11%
PV factor 10%
Semi-annual interest 6.14457 =(1-(1.10)^-10)/0.10
Principal 0.38554 =1/1.10^10
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