Question

16-01Sunland Inc. issued $4,390,000 par value, 7% convertible bonds at 96 for cash. If the bonds had not included the conversion feature, they would have sold for 95.Prepare the journal entry to record the issuance of the bonds

Answer 1

Dr Cash $4,214,000.00

Dr Discount on bonds payable $175,600.00

Cr Bonds payable $4,390,000.00

Step-by-step explanation:

The amount realized from the issuance of the bonds is 96/100*$4390000=$ 4,214,400.00

However, the bond par value is $4,390,000,invariably there was a discount on bonds issued to the tune $ 175,600.00 ($4,390,000-$4,214,400.00)

The required entries would be to debit cash with the proceeds of the issue while bonds payable is credited with the par value of $4,390,000.00 ,with the difference between proceeds and par amount debited to discount on bonds payable account