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9 July, 17:33

Windsor Co. is building a new hockey arena at a cost of $2,420,000. It received a down payment of $510,000 from local businesses to support the project, and now needs to borrow $1,910,000 to complete the project. It therefore decided to issue $1,910,000 of 10%, 10-year bonds. These bonds were issued on January 1, 2019, and pay interest annually on each January 1. The bonds yield 9%.

Prepare the journal entry to record the issuance of the bonds on January 1, 2019.

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  1. 9 July, 17:35
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    Dr Cash $2,032,577.26

    Cr premium on bonds payable $122,577.26

    Cr bonds payable $1,910,000

    Explanation:

    First and foremost the proceeds received from the bond issuance needs to determine the pv formula in excel as follows:

    =-pv (rate, nper, pmt, fv)

    rate is the yield to maturity of 9%

    nper is the number of annual coupons payable by the bond which is 10

    pmt is the amount of annual coupon i. e $1,910,000*10%=$191000

    fv is the face value of the bond which is $1,910,000

    =-pv (9%,10,191000,1910000) = $2,032,577.26

    premium on bonds issuance = 2,032,577.26-1,910,000.00 = $122,577.26
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