Question

Garcia Company issues 11.5%, 15-year bonds with a par value of $360,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 9.5%, which implies a selling price of 117 3/4.

Prepare the journal entry for the issuance of these bonds for cash on January 1.

Answer 1

The journal entry for issuing 11.5%, 15-year bonds by Garcia Company on January 1 includes debiting Cash for $423,900, crediting Bonds Payable for $360,000, and crediting Premium on Bonds Payable for $63,900. This reflects the bond's issuance at a 117 ¾% premium due to the current market interest rate of 9.5%.

Step-by-step explanation:

The student has asked how to prepare a journal entry for the issuance of bonds. Specifically, the scenario involves Garcia Company issuing 11.5%, 15-year bonds with a par value of $360,000 and semiannual interest payments. The bonds are sold at a premium due to the market interest rate being 9.5%, while the bonds' stated interest rate is 11.5%. The bonds' selling price is stated as 117 ¾, which means 117.75% of the par value.

Here's the journal entry for issuing the bonds on January 1:

Cash: $423,900 [(360,000 * 117.75%) = 423,900]

Bonds Payable: $360,000

Premium on Bonds Payable: $63,900 [(423,900 - 360,000) = 63,900]

With this journal entry, Garcia Company recognizes the receipt of cash from the sale of the bonds, the creation of a liability (Bonds Payable), and the premium that arises when bonds are sold for more than their par value.

Answer 2

The journal entry for the issuance of these bonds for cash on January 1 would be to debit cash for $360,000 and credit bonds payable for $360,000.

Step-by-step explanation:

Bonds issued = 11.5%

Par value = $360,000

Market rate = 9.5%

A journal is a personal or professional record of events, thoughts, or reflections, often organized by date. It serves as a tool for recording experiences, tracking progress, or expressing emotions. Journals can take various forms, including written or digital formats. The journal entry for the issuance of these bonds for cash on January 1 would be as follows:

• Debit Cash - $360,000
• Credit Bonds Payable - $360,000

This entry reflects the issuance of the bonds for their par value of $360,000, with cash received in return.