Reference no: EM132454426

Problem - Issuance and Redemption of Bonds

Venezuela Co. is building a new hockey arena at a cost of $2,500,000. 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 decides to issue $2,000,000 of 10.5%, 10-year bonds. These bonds were issued on January 1, 2013, and pay interest annually on each January 1. The bonds yield 10%. Venezuela paid $50,000 in bond issue costs related to the bond sale.

Required -

1. Prepare the journal entry to record the issuance of the bonds and the related bond issue costs incurred on January 1, 2013.

2. Prepare a bond amortization schedule up to and including January 1, 2017, using the effective-interest method.

3. Assume that on July 1, 2016, Venezuela Co. redeems half of the bonds at a cost of $1,065,000 plus accrued interest. Prepare the journal entry to record this redemption.