Problem 14-2 (Part Level Submission) Sandhill Co. is building a new hockey arena
ID: 2577894 • Letter: P
Question
Problem 14-2 (Part Level Submission)
Sandhill Co. is building a new hockey arena at a cost of $2,750,000. It received a downpayment of $350,000 from local businesses to support the project, and now needs to borrow $2,400,000 to complete the project. It therefore decides to issue $2,400,000 of 10%, 10-year bonds. These bonds were issued on January 1, 2016, and pay interest annually on each January 1. The bonds yield 9%.
(a)
Date
Account Titles and Explanation
Debit
Credit
January 1, 2016
Problem 14-2 (Part Level Submission)
Sandhill Co. is building a new hockey arena at a cost of $2,750,000. It received a downpayment of $350,000 from local businesses to support the project, and now needs to borrow $2,400,000 to complete the project. It therefore decides to issue $2,400,000 of 10%, 10-year bonds. These bonds were issued on January 1, 2016, and pay interest annually on each January 1. The bonds yield 9%.
Explanation / Answer
Present value of the principal for 10 periods at 9% 1536150 2400000*0.4224 1,013,760 2400000*10% = 240000 Present value of interest = 240000*6.4177 1540248 Present selling value of the bonds 2,554,008 Cash 2,554,008 Bonds Payable 2400000 Premium Bonds Payable 154,008