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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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ExerciseIssuing at Par, a Premium, or a Discount

Dash Enterprises is planning to issue 1,500 bonds, each having a face amount of $I,000. Required:

  1. Prepare the journal entry to record the sale of the bonds at par.
  2. Prepare the journal entry to record the sale of the bonds at a premium of $19,000.
  3. Prepare the journal entry to record the sale of the bonds at a discount of $32,000.
  4. CONCEPTUAL CONNECTION Assuming the stated rate is identical for the previous three scenarios, in which scenario is the market rate of interest (yield) highest? 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.

Amortization of Bonds premium or discount:

Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

Requirement 1:

To prepare:

The journal entry to record the sale of bonds.

Explanation

The journal entry to record the sale of bonds is explained as follows:

Journal Entries
Account Titles Debit
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.

Amortization of Bonds premium or discount:

Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

Requirement 2:

To prepare:

The journal entry to record the sale of bonds.

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.

Amortization of Bonds premium or discount:

Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

Requirement 3:

To prepare:

The journal entry to record the sale of bonds.

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.

Amortization of Bonds premium or discount:

Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

Requirement 4:

To indicate:

The case in which bond yield shall be highest.

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