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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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When bonds are issued by a company, the accounting entry typically shows an

  1. increase in liabilities and a decrease in stockholders' equity.
  2. increase in assets and an increase in stockholders’ equity.
  3. increase in liabilities and an increase in stockholders’ equity.
  4. increase in assets and an increase in liabilities.

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. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

To choose:

The correct Statement about Journal entry for Issuance on bonds payable.

Explanation

Explanation for correct answer:

Issuance of bonds payable results in increase in cash (assets) and increase in Bonds Payable (Liability).

Hence, the correct option is d.

Explanation for incorrect answers:

a. Issuance of bonds payable results in increase in cash (assets) and increase in Bonds Payable (Liability)...

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