Problem:

Venezuela Co. is building a new hockey arena at a cost of $2,579,000. It received a downpayment of $510,400 from local businesses to support the project, and now needs to borrow $2,068,600 to complete the project. It therefore decides to issue $2,068,600 of 12%, 10 year bonds. These bonds were issued on January 1, 2013, and pay interest annually on each January 1. The bonds yield 11%. Venezuela paid $55,400 in bond issue costs related to the bond sale.

Required:

Question 1: Prepare the journal entry to record the issuance of the bonds and the related bond issue costs incurred on January 1, 2013.

Question 2: Prepare a bond amortization schedule up to and including January 1, 2017, using the effective interest method.

Question 3: Assume that on July 1, 2016, Venezuela Co. redeems half of the bonds at a cost of $1,108,970 plus accrued interest. Prepare the journal entry to record this redemption.

Note: Please show the work not just the answer.