Question

On January 1, Year 1, McClurg Corporation issues 5%, 11-year bonds with a face amount of $70,000 for $76,180. The market interest rate is 4%. Interest is paid semiannually on June 30 and December 31. Complete the necessary journal entry for the issuance of the bonds by selecting the account names from the drop-down menus and entering the associated dollar amounts. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

Answer:

The journal entry for the issuance of the bond is shown below:

Explanation:

The entry to be posted on Jan 1

Cash A/c..............................................Dr   $76,180

    Premium on bonds payable A/c........Cr     $6,180

    Bonds Payable A/c..................................Cr   $70,000

As bonds issued, so cash is increasing and any increase in cash is debited. Therefore, the cash account is debited. But the bonds issued at a premium so the premium on the bonds payable will be credited. And bonds payable account is credited.