Issuing Bonds at a Premium On the first day of the fiscal year, a company issues a $5,000,000, 7%, five-year bond that pays semiannual interest of $175,000 ($5,000,000 * 7% * ½), receiving cash of $5,400,000. Journalize the bond issuance. If an amount box does not require an entry, leave it blank.

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Business

Bryson Hood

8 January, 18:28

Issuing Bonds at a Premium On the first day of the fiscal year, a company issues a $5,000,000, 7%, five-year bond that pays semiannual interest of $175,000 ($5,000,000 * 7% * ½), receiving cash of $5,400,000. Journalize the bond issuance. If an amount box does not require an entry, leave it blank.

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Gunnar Vaughan · Answer 1

Dr Cash $5,400,000

Cr Bonds payable $5,000,000

Cr Premium on bonds payable $400,000

Explanation:

The cash proceeds from the bond issuance is $5,400,000 which is divided $5,000,000 face value and $400,000 premium on bonds payable ($5,400,000-$5,000,000).

The appropriate accounting entries would to debit cash account with the total proceeds of $5,400,000 since cash has increased, while crediting bonds payable and premium on bonds payable with $5,000,000 and $400,000 respectively.