Garcia Company issues 10%, 15-year bonds with a par value of $240,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 8%, which implies a selling price of 117¼. Prepare the journal entry for the issuance of these bonds. Assume the bonds are issued for cash on January 1.

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Business

Layne Cameron

24 December, 21:59

Garcia Company issues 10%, 15-year bonds with a par value of $240,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 8%, which implies a selling price of 117¼. Prepare the journal entry for the issuance of these bonds. Assume the bonds are issued for cash on January 1.

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Zaiden Hicks · Answer 1

The journal entry for the issue of bond for cash is shown below:

Explanation:

January 1

Cash A/c ... Dr $281,400

Bonds Payable A/c ... Cr $240,000

Premium on Bonds Payable A/c ... Cr $41,400

Working Notes:

Cash = Bonds Par Value * Selling Price

= $240,000 * 117.25 %

= $281,400

Premium on bonds payable = Cash - Bonds Payable

= $281,400 - $240,000

= $41,400