Question

On August 1, 2022, Blue Spruce Corp. issued $481,200, 7%, 10-year bonds at face value. Interest is payable annually on August 1. Blue Spruces year-end is December 31. Prepare journal entry to record the issuance of the bonds.

Answer 1

Blue Spruce Corp.'s journal entry to record the issuance of its $481,200, 7%, 10-year bonds at face value involves debiting Cash and crediting Bonds Payable for the amount of $481,200.

Step-by-step explanation:

Bond Issuance Journal Entry

When Blue Spruce Corp. issued the bonds on August 1, 2022, they recorded the bond at face value. Since the bonds were issued at face value, the journal entry to record this transaction would involve a debit to cash and a credit to bonds payable for the total amount of the bond issue. Here's the journal entry for the issuance:

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• Debit Cash $481,200 (To record the inflow of cash from bond issuance)
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• Credit Bonds Payable $481,200 (To record the obligation to pay back the principal amount in 10 years)

No premium or discount is recorded since the bonds were issued at face value. The interest expense will be recorded when it is paid on August 1 of each year, which is not part of this particular journal entry.