Question

Splish Brothers Inc. has issued three different bonds during 2019. Interest is payable annually on each of these bonds. 1. On January 1, 2019, 1,400, 8%, 5-year, $1,000 bonds dated January 1, 2019, were issued at face value. 2. On July 1, $864,000, 9%, 5-year bonds dated July 1, 2019, were issued at 104. 3. On September 1, $329,000, 7%, 5-year bonds dated September 1, 2019, were issued at 99. Prepare the journal entries to record each bond transaction at the date of issuance.

Answer 1

Answer:

Dr Cash       $1,400,000

Cr Notes payable             $1,400,00

Dr Cash            $901,152

Cr premium on bonds payable     $37,152

Cr bonds payable                           $864,000

Dr cash                                      $325,710

Dr discount on bonds payable $3,290

Cr bonds payable                                        $329,000

Explanation:

The cash proceeds from the first bond is $ 1,400,000   ($1000*1400),hence the entries would be to debit cash account with $1,400,000 and credit notes payable with same amount.

The cash from the second bond is $ 901,152 ($864,000*104.3%),which implies that the bond was issued at a premium  $ 37,152 ($901,152-$864,000) .

The third bond gave a cash inflow of $ 325,710  ($329,000*99%),which means a discount on bonds payable of $ 3,290 was recorded.