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11 December, 01:00

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.

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  1. 11 December, 02:48
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    Entries are given below

    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
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