Splish Brothers Inc. has issued three different bonds during 2019. Interest is payable annually on each of these bonds. 1. On January 1, 2019, 1,400, 8%, 5-year, $1,000 bonds dated January 1, 2019, were issued at face value. 2. On July 1, $864,000, 9%, 5-year bonds dated July 1, 2019, were issued at 104. 3. On September 1, $329,000, 7%, 5-year bonds dated September 1, 2019, were issued at 99. Prepare the journal entries to record each bond transaction at the date of issuance.

Question

Mary Fischer

Business

11 June, 19:42

Splish Brothers Inc. has issued three different bonds during 2019. Interest is payable annually on each of these bonds. 1. On January 1, 2019, 1,400, 8%, 5-year, $1,000 bonds dated January 1, 2019, were issued at face value. 2. On July 1, $864,000, 9%, 5-year bonds dated July 1, 2019, were issued at 104. 3. On September 1, $329,000, 7%, 5-year bonds dated September 1, 2019, were issued at 99. Prepare the journal entries to record each bond transaction at the date of issuance.

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Mikayla Alvarado · Answer 1

Dr Cash $1,400,000

Cr Notes payable $1,400,00

Dr Cash $901,152

Cr premium on bonds payable $37,152

Cr bonds payable $864,000

Dr cash $325,710

Dr discount on bonds payable $3,290

Cr bonds payable $329,000

Explanation:

The cash proceeds from the first bond is $ 1,400,000 ($1000*1400), hence the entries would be to debit cash account with $1,400,000 and credit notes payable with same amount.

The cash from the second bond is $ 901,152 ($864,000*104.3%), which implies that the bond was issued at a premium $ 37,152 ($901,152-$864,000).

The third bond gave a cash inflow of $ 325,710 ($329,000*99%), which means a discount on bonds payable of $ 3,290 was recorded.