Question

The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to ______ and a credit to ______.

a) Bonds Payable; Cash
b) Notes Payable; Cash
c) Cash; Bonds Payable
d) Cash; Bonds Receivable

Answer 1

A debit to Cash and a credit to Bonds Payable is recorded when 100 bonds are issued at their face value. This reflects the company's cost of receiving cash (an asset) and incurring debt (a liability) to the bondholders.

Step-by-step explanation:

The journal entry to record the issuing of 100 bonds at their $1,000 face value will include a debit to Cash and a credit to Bonds Payable. This is because the company is receiving cash as it issues the bonds, which is an asset and therefore is debited.

The company is also creating a liability because it now owes money to the bondholders, which is recorded as Bonds Payable and therefore is credited.

Bonds are a form of debt financing that allows a company to raise funds from investors. These investors loan money to the company and in return, receive interest payments. Upon maturity, the company must repay the investors the original amount borrowed.

The relationship between bond issuers and bondholders is governed by the terms set out in the bond covenant, and failure to meet these terms can lead to legal action.