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Financial Accounting

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

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 14, Problem 3PEB
Textbook Problem
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On the first day of the fiscal year, a company issues a $3,000,000, 11%, five-year bond that pays semiannual interest of $165,000 ($3,000,000 × 11% × ½), receiving cash of $2,889,599. 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 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.

Prepare journal entry for issuance of bonds payable.

DateAccount Title and ExplanationPost RefDebit ($)Credit ($)
Cash   2,889,599
Discount on Bonds Payable  (1)110,401
 Bonds Payable  3,000,000
    (To record issuance of bonds payable at discount) 

Table (1)

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

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Chapter 14 Solutions

Financial Accounting
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