Question

On the first day of the fiscal year, a company issues a $1,200,000, 9%, five-year bond that pays semiannual interest of 54,000 (1,200,00 x 9% x 1/2)

receiving cash of $1,153,670. Journalize the bond issuance.

Answer 1

The company's bond issuance is recorded by debiting Cash for the amount received, debiting Discount on Bonds Payable for the difference between the face value and the cash received, and crediting Bonds Payable for the face value of the bond.

Step-by-step explanation:

The question involves journalizing the bond issuance for a company. When a company issues a bond, it must record the transaction in its accounting journal, which includes debits and credits to the appropriate accounts. In this case, the company issued a $1,200,000 bond at 9% with semiannual interest payments of $54,000. However, the cash received was $1,153,670, which suggests the bond was sold at a discount (i.e., less than the face value).

To journalize the issuance of the bond:

• Debit the Cash account for the amount received, $1,153,670.
• Debit the Discount on Bonds Payable account for the difference between the face value and the cash received, which is $46,330 ($1,200,000 - $1,153,670).
• Credit the Bonds Payable account for the face value of the bond, $1,200,000.

The journal entry would reflect the issuance of the bond and the discount at which it was sold.