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Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124
Textbook Problem

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% × ½), receiving cash of $8,308,869. Journalize the bond issuance.

To determine

Prepare journal entry to record issuance of the bonds.

Explanation

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.

Prepare journal entry for issuance of bonds.

DateAccount Title and ExplanationPost RefDebit ($)Credit ($)
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)

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

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