Question

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.

Answer 1

Dr Cash $2,032,577.26

Cr premium on bonds payable $122,577.26

Cr bonds payable $1,910,000

Step-by-step 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