Reference no: EM132837207

Problem - Venzuela Inc. is building a new hockey arena at a cost of $2.5 million. It received a down payment of $500,000 from local businesses to support the project, and now needs to borrow $2 million to complete the project. It therefore decides to issue $2 million of 10-year, 10.5% bonds. These bonds were issued on January 1, 2010, and pay interest annu- ally on each January 1. The bonds yield 10% to the investor and have an effective interest rate to the issuer of 10.4053% (increased effective interest rate due to the capitalization of the bond issue costs). Any additional funds that are needed to complete the project will be obtained from local businesses. Venzuela Inc. paid and capitalized $50,000 in bond issuance costs related to the bond issue. Prepare the journal entry to record the issuance of the bonds on January 1, 2010.