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.

Question

Milagros

Business

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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Answers (1)

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Andre Wilkins · Answer 1

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