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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Brief Exercise Issuance of Long-Term Debt

  1. Simpson Company is an entertainment company located in Springfield, IL. H. Simpson recently issued $200,000 of bonds to finance large expenditures for an upcoming television production. H. Simpson received cash of S194,620 upon the issuance of the bonds and plans to pay interest semiannually.

Required:

  1. Prepare the necessary journal entry to record the issuance of the bonds.
  2. Is the stated rate greater or less than the yield? How do you know?

To determine

Concept introduction:

Bonds:

Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date. Bonds may be issued at a premium or discount.

Requirement 1:

To prepare:

The Journal entry for issuance of bonds.

Explanation

The Journal entry for issuance of bonds is explained as follows:

Journal Entries
Date Account Titles Debit Credit...
To determine

Concept introduction:

Bonds:

Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date. Bonds may be issued at a premium or discount.

Requirement 2:

To identify:

If the bond yield is greater or less than the stated rate.

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