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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 an $8,000,000, 11%, five-year bond that pays semiannual interest of $440,000 ($8.000.000 ×11% × 1 2 ), receiving cash of $8,308,869. 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 8,308,869
Premium on Bonds Payable (1) 308,869
Bonds Payable 8,000,000
(To record issue of bonds at premium)

Table (1)

Working note:

Calculate premium on bonds payable...

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