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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Issuing bonds at a premium

On the first day of the fiscal year, a company issues a $7,500,000, 8%, five-year bond that pays semiannual interest of $300,000 (7,500,000 ×8% × 1 2 ), receiving cash of $7,811,873. Journalize the bond issuance.

To determine

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.

Premium on bonds payable: It occurs when the bonds are issued at a high price than the face value.

To prepare: Journal entry to record issuance of the bonds.

Explanation

Prepare journal entry for issuance of bonds.

Date Account Title and Explanation Post Ref Debit ($) Credit ($)
Cash 7,811,873
Premium on Bonds Payable (1) 311,873
Bonds Payable 7,500,000
(To record issue of bonds at premium)

Table (1)

Working note:

Calculate premium on bonds payable...

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