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Legacy issues $325,000 of 5%, four-year bonds dated January 1, 2019, that pay interest semiannually on June 30 and December 31. They are issued at $292,181 when the market rate is 8%.
Required:
1. Prepare the January 1
- Record the issue of bonds with a par value of $325,000 on January 1, 2019 at an issue price of $292,181.
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Bonds Payable:
Bonds Payable are the financial instruments that are issued with a promise or commitment to repay the full amount to its owners within a specific time period. When this instrument is issued, the company is also committed to paying periodic interest to its owners over the life of the bonds.
The main two advantages of bonds issue are the bond owners are not entitled to any ownership interest and the bonds issue have a lower interest rate.
When these bonds are issued, the stated rate and its interest or coupon rate are compared, to determine whether they are issued at a premium, discount, or at par value.
1. If the coupon rate is higher than the stated or market rate, it is said that the bonds are issued at a premium.
2. If the coupon rate is lower than the stated or market rate, it is said that the bonds are issued at a discount.
3. If the coupon rate is the same as the market rate, it is said that the bonds are issued at par value.
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