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Issuing bonds at a discount On the first day of the fiscal year, a company issues a $1,200,000, 9%, five-year bond that pays semiannual interest of $54,000 ($1,200,000 × 9% × ½), receiving cash of $1,153,670. Journalize the bond issuance.
Accounting (Text Only)
Solutions
Accounting (Text Only)
Issuing bonds at a discount
On the first day of the fiscal year, a company issues a $1,200,000, 9%, five-year bond that pays semiannual interest of $54,000 ($1,200,000 × 9% × ½), receiving cash of $1,153,670. Journalize the bond issuance.
Bonds: Bonds are long-term promissory notes that are represented by a company while borrowing money from investors to raise fund for financing the operations.
Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.
Discount on bonds payable: It occurs when the bonds are issued at a low price than the face value.
To Prepare: Journal entry to record issuance of the bonds.
Explanation of Solution
Prepare journal entry for issuance of bonds payable.
| Date | Account Title and Explanation | Post Ref | Debit ($) | Credit ($) | |||
| Cash | 1,153,670 | ||||||
| Discount on Bonds Payable (1) | 46,330 | ||||||
| Bonds Payable | 1,200,000 | ||||||
| (To record issuance of bonds payable at discount) | |||||||
Table (1)
Working note:
Calculate discount on bonds payable...
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