On the first day of the fiscal year, a company issues a $2,500,000, 4%, five-year bond that pays semiannual interest of$50,000 ($2,500,000 × 4% × ½), receiving cash of$2,390,599. Journalize the bond issuance.

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

Chapter
Section

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 14, Problem 3PEA
Textbook Problem
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On the first day of the fiscal year, a company issues a $2,500,000, 4%, five-year bond that pays semiannual interest of$50,000 ($2,500,000 × 4% × ½), receiving cash of$2,390,599. Journalize the bond issuance.

To determine

Prepare journal entry to record issuance of the bonds.

Explanation of Solution

Bonds: Bonds are long-term promissory notes that are issued 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 $1,000 per bond, to raise fund for financing the operations. Discount on bonds payable: It occurs when the bonds are issued at a low price than the face value. Prepare journal entry for issuance of bonds payable.  Date Account Title and Explanation Post Ref Debit ($) Credit (\$) Cash 2,390,599 Discount on Bonds Payable  (1) 109,401 Bonds Payable 2,500,000 (To record issuance of bonds payable at discount)

Table (1)

• Cash is an asset and it is increased...

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