Question

To complete a new hockey arena, Venezuela Co. needs to borrow $2,000,000. It therefore decides to issue $2,000,000 of 10.5%, 10 year bonds. These bonds were issued on Jan 1, 2016, and pay interest semiannually, on each June 30 and Dec 31. The bond yield 10%. Venezuela paid $50,000 in bond issue costs related to the bond sale. Venezuela uses effective interest methof for interest expense, and straight line for bond issue costs.

1. Prepare journal entry to record the issuance of the bonds and the related bond issue costs incurred on Jan 1, 2016. (2 decimal point)

2. Prepare a bon amortization schedule up to and including Dec 31,2017, using effective interest method

3. Assume that on Oct 1,2017, Venezuela Co. redeems $500,000 of the bonds at the cost of $528,000 plus accured interest. Prepar the journal to record this redemption. Show all of your work, Hint: you should know the ending balance of discount (or premium) on bonds and bond issue cost right before this redemption



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