Journal Entry Review Questions 4



Q49. Review questions 4
(1) Entity A issued $800,000 bonds at a discount and received $780,000 in cash.
(2) Entity B issued $900,000 bonds at a premium and received $950,000 in cash.
Prepare journal entries to record these transactions.

A49. Bonds payable is recorded on the credit side.

(1) Entity A issued $800,000 bonds at a discount and received $780,000 in cash.

  Debit Credit
Cash 780,000  
Discount on bonds payable 20,000  
     Bonds payable   800,000

[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.

(2) Entity B issued $900,000 bonds at a premium and received $950,000 in cash.

  Debit Credit
Cash 950,000  
     Bonds payable   900,000
     Premium on bonds payable   50,000

[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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