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Accounting Question | Prepare Entries for bonds issued
Halloway Compnay has issued three different bonds during 2008.?
Interest is payable semiannually on each of these bonds.
1. On Jan 1 2008, 1,000, 8%, 5 year bonds dated Jan 1, 2008, were issued at face value.
2.On July 1, $800,000, 9%, 5 year bonds dated July 1, 2008, were issued at 102.
3. On September 1, $200,000 7%, 5 year bonds dated September 1, 2008, were issued at 98.
Prepare the journal entry to record each bond transaction at the date of issuance.
Interest is payable semiannually on each of these bonds.
1. On Jan 1 2008, 1,000, 8%, 5 year bonds dated Jan 1, 2008, were issued at face value.
2.On July 1, $800,000, 9%, 5 year bonds dated July 1, 2008, were issued at 102.
3. On September 1, $200,000 7%, 5 year bonds dated September 1, 2008, were issued at 98.
Prepare the journal entry to record each bond transaction at the date of issuance.
answers (2)
When bonds are issued by a company, the cash proceeds received from the sale of the bonds is journalized as follows:
Example 1:
$1000 in 5 year bonds issued at face value at 8% interest compounded semiannually
Cash $1000.00 (debit)
Bonds Payable $1000.00 (credit)
Since in this first example, the bonds were issued at face value, there is no premium or discount to enter, and as such consists of only one debit and one credit entry.
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Example 2:
$800,000 in 5 year bonds issued at 102 with 9% interest compounded semiannually
Cash $816,000.00 (debit)
Bonds Payable $800,000.00 (credit)
Premium on Bonds Payable $16,000.00 (credit)
Since these bonds were issued at a premium, 102, the entry to record the issuance of the bonds increases (debits) cash for the $816,000.00 received, increases (credits) bonds payable for the $800,000.00 maturity amount, and increases (credits) premium on bonds payable for $16,000.00. Premium on bonds payable is a contra account to bonds payable that increases its value and is added to bonds payable in the long-term liability section of a balance sheet.
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Example 3:
$200,000 in 5 year bonds issued at 98 with a 7% interest compounded annually.
Cash $196,000.00 (debit)
Discount on Bonds Payable $4,000.00 (debit)
Bonds Payable $200,000.00 (credit)
Since the bonds were issued at 98, a discount, the entry records $196,000.00 which is called the carrying amount of the bond. The discount on bonds payable, the $4,000.00 debit, is the difference between the cash received and the maturity value of the bonds and represents additional interest expense to Halloway Company. (the company that issued the bond).
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This would be the way the actual bond issues are registered in a journal entry. Journalizing the interest payments would depend on which method is used, be it the straight-line method or the effective interest method
Example 1:
$1000 in 5 year bonds issued at face value at 8% interest compounded semiannually
Cash $1000.00 (debit)
Bonds Payable $1000.00 (credit)
Since in this first example, the bonds were issued at face value, there is no premium or discount to enter, and as such consists of only one debit and one credit entry.
--------------
Example 2:
$800,000 in 5 year bonds issued at 102 with 9% interest compounded semiannually
Cash $816,000.00 (debit)
Bonds Payable $800,000.00 (credit)
Premium on Bonds Payable $16,000.00 (credit)
Since these bonds were issued at a premium, 102, the entry to record the issuance of the bonds increases (debits) cash for the $816,000.00 received, increases (credits) bonds payable for the $800,000.00 maturity amount, and increases (credits) premium on bonds payable for $16,000.00. Premium on bonds payable is a contra account to bonds payable that increases its value and is added to bonds payable in the long-term liability section of a balance sheet.
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Example 3:
$200,000 in 5 year bonds issued at 98 with a 7% interest compounded annually.
Cash $196,000.00 (debit)
Discount on Bonds Payable $4,000.00 (debit)
Bonds Payable $200,000.00 (credit)
Since the bonds were issued at 98, a discount, the entry records $196,000.00 which is called the carrying amount of the bond. The discount on bonds payable, the $4,000.00 debit, is the difference between the cash received and the maturity value of the bonds and represents additional interest expense to Halloway Company. (the company that issued the bond).
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This would be the way the actual bond issues are registered in a journal entry. Journalizing the interest payments would depend on which method is used, be it the straight-line method or the effective interest method
tags: accounting, bonds
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1 Debit: Cash 1,000
Credit: Bonds Payable 1,000
2.Debit: Cash: 816,000
Credit: Bonds Payable 800,000
Credit: Premium on Bonds Payable 16,000
3. Debit: Cash: 196,000
Debit: Discount on Bonds Payable 4000
Credit: Bonds Payable: 200,000
Credit: Bonds Payable 1,000
2.Debit: Cash: 816,000
Credit: Bonds Payable 800,000
Credit: Premium on Bonds Payable 16,000
3. Debit: Cash: 196,000
Debit: Discount on Bonds Payable 4000
Credit: Bonds Payable: 200,000
voted helpful: blitzkrieg, defolts
Voted as best: b2twin, safiqulislam
I believe that you may have inadvertently deviated from the amounts originally presented by the person posting the question, in that you provided examples for a bond issue at face value, a discount and a premium, but all with the data that corresponded solely to the first example; omitting the second and third portions of the original question.
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