Issuance of bonds payable



Q29. Issuance of bonds payable
Entity A issued $200,000 bonds and received $200,000 in cash.
Prepare a journal entry to record this transaction.

A29. Bonds payable is recorded on the credit side.

  Debit Credit
Cash 200,000  
     Bonds payable   200,000

[Note]
Increase in bonds payable (liability): credit

[Exercise]
Entity B issued $200,000 bonds at a discount and received $190,000 in cash.

  Debit Credit
Cash 190,000  
Discount on bonds payable 10,000  
     Bonds payable   200,000

[Note]
1. Increase in discount on bonds payable (contra-liability): debit
2. Discount on bonds payable is a contra-liability account, which is subtracted from bonds payable.
3. Discount on bonds payable is amortized over the life of bonds payable using the effective interest method.

[Exercise]
Entity C issued $200,000 bonds at a premium and received $205,000 in cash.

  Debit Credit
Cash 205,000  
     Bonds payable   200,000
     Premium on bonds payable   5,000

[Note]
1. Increase in premium on bonds payable (liability): credit
2. Premium on bonds payable is a liability account, which is added to bonds payable.
3. Premium on bonds payable is amortized over the life of bonds payable using the effective interest method.

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