Answer:
1) If bonds are issued as 100 entry will be
Debit Credit
Cash 600,000
Bonds payable 600,000
2) If bonds are issued at 95
Debit Credit
Cash 570,000
Discount 30,000
Bonds payable 600,000
3) If bonds are issued at 105
Cash 630,000
Bonds payable 600,000
Premium 30,000
4)
Debit Credit
Interest payable 42,000
Cash 42,000
Explanation:
1) If the bonds are issued at 100 then the company will receive the same amount of cash as the face value so they will receive 600,000 cash and will owe the bond buyers 600,000 so they will debit 600,000 cash and credit 600,000 bonds payable.
2) If bonds are issued at 95 then the company will receive cash 95% of 600,000 which is 570,000 so they will debit 570,000 cash, 30,000 will debited as discount and 600,000 bonds payable.
3) If bonds are issued at 105 then the company will receive cash 105% of 600,000 which is 630,000 so they will debit 630,000 cash and will credit 600,000 bonds payable and 30,000 as premium.
4) The bonds are issued on January 1 and there is a journal entry of interest payment at July 1 so we assume that the bond has semi annual payments.
14% of 600,000 is 84,000 and we will divide it by 2 to find the semi annual payment which will be 42,000, so we will debit interest payable by 42,000 and credit cash by 42,000.
