Cullumber Company has issued three different bonds during 2019. Interest is payable annually on each of these bonds. 1. On January 1, 2019, 1,000, 6%, 5-year, $1,000 bonds dated January 1, 2019, were issued at face value. 2. On July 1, $700,000, 7%, 5-year bonds dated July 1, 2019, were issued at 101. 3. On September 1, $200,000, 5%, 5-year bonds dated September 1, 2019, were issued at 97. Prepare the journal entries to record each bond transaction at the date of issuance.

Question

Business

Maribel Fischer

14 September, 01:46

Cullumber Company has issued three different bonds during 2019. Interest is payable annually on each of these bonds. 1. On January 1, 2019, 1,000, 6%, 5-year, $1,000 bonds dated January 1, 2019, were issued at face value. 2. On July 1, $700,000, 7%, 5-year bonds dated July 1, 2019, were issued at 101. 3. On September 1, $200,000, 5%, 5-year bonds dated September 1, 2019, were issued at 97. Prepare the journal entries to record each bond transaction at the date of issuance.

+1

Answers (1)

Know the Answer?

Gator · Answer 1

1.

January 1, 2019,

Dr. Cash $1,000,000

Cr. Bond Payable $1,000,000

2.

July 1,

Dr. Cash $707,000

Cr. Premium on Bond $7,000

Cr. Bond Payable $700,000

3.

September 1,

Dr. Cash $194,000

Cr. Discount on Bond $6,000

Cr. Bond Payable $200,000

Explanation:

1.

As the bond is issued at the face value, $1,000,000 cash will be received, So cash account will be debited by $1,000,000 and Bond Payable account will be credited because it is a liability account.

2.

When the Bond is issued on the price more than its face value, the exptra amount from face value received is called Bond Premium.

Cash Proceed = $700,000 x 101% = $707,000

Premium = $707,000 - $700,000 = $7,000

Bond Liability = $700,000

3.

The bond is issued on discount when the bond issuance proceeds are less than the face value of the bond.

Cash Proceed = $200,000 x 97% = $194,000

Discount = $200,000 - $194,000 = $6,000

Bond Liability = $200,000