Problem 14-2 (Part Level Submission) Larkspur Co. is building a new hockey arena
ID: 2432858 • Letter: P
Question
Problem 14-2 (Part Level Submission)
Larkspur Co. is building a new hockey arena at a cost of $2,430,000. It received a downpayment of $490,000 from local businesses to support the project, and now needs to borrow $1,940,000 to complete the project. It therefore decides to issue $1,940,000 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%.
(a)
Date
Account Titles and Explanation
Debit
Credit
January 1, 2016
Problem 14-2 (Part Level Submission)
Larkspur Co. is building a new hockey arena at a cost of $2,430,000. It received a downpayment of $490,000 from local businesses to support the project, and now needs to borrow $1,940,000 to complete the project. It therefore decides to issue $1,940,000 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%.
(a)
Date
Account Titles and Explanation
Debit
Credit
January 1, 2016
Problem 14-2 (Part Level Submission)
Larkspur Co. is building a new hockey arena at a cost of $2,430,000. It received a downpayment of $490,000 from local businesses to support the project, and now needs to borrow $1,940,000 to complete the project. It therefore decides to issue $1,940,000 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%.
Explanation / Answer
Issue price of bonds = (1940000*11%*6.14457+1940000*0.38554) = 2059199
Journal entry :
Date account and explanation debit credit January 1, 2016 Cash 2059199 Bonds payable 1940000 Premium on bonds payable 119199 (To record bond issue)