Question

Garcia Company issues 11.0%, 15-year bonds with a par value of $440,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 9.0%, which implies a selling price of 114. Prepare the journal entry for the issuance of these bonds for cash on January 1.

Answer 1

Entries are given below

Step-by-step explanation:

The entry that should be made on January 1 would be

Cash 501,600(w1) Debit

Premium on bonds 61600(w2) Credit

Bonds payable 440000 Credit

Working 1

Cash proceeds = $440,000/100 x $114

Cash proceeds = $501600

Working 2

Premium = selling price of bond - Face value of the bond

Premium = $501,600 - $440,000

Premium = 61600