Final answer:
The journal entry for Gasperson Inc.'s bond issuance will involve debiting cash for the amount received ($102,000,000) and crediting bonds payable for the face value ($100,000,000), along with crediting premium on bonds payable for the extra amount over face value ($2,000,000).
Step-by-step explanation:
The journal entry to record the issuance of bonds when Gasperson Inc. issued $100,000,000, 7% bonds at 102 will include a debit to cash for $102,000,000 (100,000,000 * 102%) and a credit to bonds payable for the face value, which is $100,000,000. Additionally, the entry will include a credit to premium on bonds payable for $2,000,000, which is the difference between the cash received and the face value of the bonds. The premium on the bonds payable represents the additional amount over the face value that the company will have to repay to the bondholders over the life of the bonds.
Example:
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Debit Cash: $102,000,000
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Credit Bonds Payable: $100,000,000
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Credit Premium on Bonds Payable: $2,000,000
Bondholders who own bonds are entitled to interest payments and have the right to take legal action if the issuing firm fails to make those payments. The issuance of bonds is a way for firms to raise capital, and investors can loan money to the firm by purchasing these bonds in denominations suited to their investment capabilities.