Question

Sheridan Limited issued $4,500,000 of 10-year, 8% bonds on January 1, 2021, when the market interest rate was 9%. Sheridan received $4,207,309 when selling the bonds. Interest is payable semi-annually on July 1 and January 1. Sheridan has a December 31 year end.Record the issue of the bonds on January 1, 2021

Answer 1

The journal entry to record the issue of the bonds on January 1, 2021, is:

Debit: Cash ($4,207,309)

Credit: Bonds Payable ($4,500,000)

Step-by-step explanation:

To record the issue of the bonds on January 1, 2021, we need to record the bond issuance and the receipt of cash from the sale of the bonds.

Bond Issuance:

Debit Cash (the amount received from selling the bonds)

Credit Bonds Payable (the face value of the bonds)

Cash received: $4,207,309

Bonds payable: $4,500,000

So, the journal entry to record the bond issuance is:

Debit: Cash ($4,207,309)

Credit: Bonds Payable ($4,500,000)

Please note that the difference between the face value of the bonds and the cash received is due to the market interest rate being different from the stated interest rate. This results in a discount or premium on the bond issuance, which is recorded separately.