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24 April, 14:26

Sunland Company issued $580,000, 6%, 20-year bonds on January 1, 2020, at 103. Interest is payable annually on January 1. Sunland uses straight-line amortization for bond premium or discount.

a. Prepare the journal entry to record the issuance of the bonds.

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  1. 24 April, 15:57
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    The journal entry for the bond issuance is as follows:

    Dr Cash $597,400.00

    Cr Bond payable $580,000.00

    Cr Premium on Bond Issuance $17,400.00

    Explanation:

    The bond issue price is $580000*103/100=$597400

    Since the bond issue price is greater than the face value of the bond, the bond is said to be issued at a premium.

    Cash increased by $597,400 due to the bond issuance, whereas the bond issuance price is $17400 greater than the bond par value. As a result, the appropriate entries would to debit cash account with the increase in cash, while the increase in obligation-bond payable is credited with the par value of $580,000.00, with balance representing the premium also credited to bond premium account.
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