Question

Hillside issues $4,000,000 of 6%, 15-year bonds dated January 1, 2016, that pay interest semiannually on June 30 and December 31. The bonds are issued at a price of $4,895,980. Required: 1. Prepare the January 1, 2016, journal entry to record the bonds’ issuance

Answer 1

Answer:

(DR) Cash $4,895,980; (CR) Bonds Payable $4,000,000; (CR) $895,980

Explanation:

The problem only requires the journal entry of the issuance of the bonds on January 1, 2016.

Simply debit "Cash" for the amount of the price which is $4,895,980.

Then ALWAYS credit "Bonds Payable" on its issued value of $4,000,000.

Now, since the cash price is greater than the issued value, the difference of $895,980 will be called as "Premium on Bonds Payable" and it will be credit.

So the entry would look like this:

(DR)      Cash                   $4,895,980

(CR)           Bonds Payable                      $4,000,000

(CR)           Premium on Bonds Payable    $895,980