Question

Sunland Co. is building a new hockey arena at a cost of $2,620,000. It received a downpayment of $530,000 from local businesses to support the project, and now needs to borrow $2,090,000 to complete the project. It therefore decides to issue $2,090,000 of 11%, 10-year bonds. These bonds were issued on January 1, 2019, and pay interest annually on each January 1. The bonds yield 10%.

Answer 1

$11,26,600 (c) Assume that on July 1, 2022, Sunland Co. retires half of the bonds at a cost of plus accrued interest. Prepare the journal entry to record this retirement. Hint: Resolve value of unamortized bond issue costs for the bonds being retired. Unamortized bond issue costs Years of bond issue Unamortized bond issue costs per year Unamortized bond issue costs per six months Six month periods to July 1, 2022 Unamortized bond issue costs to July 1, 2012 Remaining unamortorized bond issue costs as of July 1, 2012 Bonds retired as a percentage of bonds issued Value of remaining unamortized bond issue costs to retired bonds co Hint: Resolve carrying value of the bonds being retired. Interest Interest Premium Date Paid Expense Amortization Jan 1, 19 Jan 1, 20 $2,29,900 $2,21,842 $8,058 Jan 1, 21 2 ,29,900 2,21,036 8,864 Jan 1, 22 2,29,900 2,20,150 9,750 Percentage of bonds to be retired in the year Carrying value on Jan 1, 2022 of the bonds to be retired Interest on bonds to be retired as of July 1, 2022 Jul 1, 22 5 7,475 54,794 2,681 Bond Carrying Value $22,18,421 22,10,364 22,01,500 21,91,750 50% 10,95,875 10,93,194 | Reacquisition price Carrying value as of July 1, 2012 $11,26,600 10,93,194 33,406 Unamortized bond issue costs Loss $33,406 Entry for accrued interest Interest Expense [10,95,875 * 10.00% * (6/12)] Premium on Bonds Payable Cash ($10,45,000*11.00%*(6/12)] 54,794 2,681 57,475 Entry for reacquisition Bonds Payable ($20,90,000 * 50%) Premium on Bonds Payable Loss on Redemption of Bonds Unamortized Bond Issue Costs Cash 10,45,000 48,194 33,406 11,26,600 The loss is reported as an ordinary loss.