Question

On January 1, Year 1, McGee Corporation issues 5%, 10-year bonds with a face amount of $100,000. Interest is paid semiannually on June 30 and December 31. On issuance date, the market rate of interest is 5%; therefore, the issue price of the bonds is $100,000. The journal entry for the issuance of the bonds will include a ______________.

Answer 1

Answer:

JANUARY 1   Cash                          $100000 Dr

                         Bonds Payable            $100000 Cr

Explanation:

The difference in the bond's coupon rate and the market interest rate on the issue date determines the value at which bonds are issued. If the market interest rate and the coupon rate on bonds is equal on the date of issuance, the bonds are issued at face value.

The journal entry to record the issuance of bonds at face value is,

Cash                                  $100000 Dr

     Bonds Payable                     $100000 Cr

Answer 2

Answer:

Cash $100,000 (debit)

Investment in Bonds $100,000 (credit)

Explanation:

Cash $100,000 (debit)

Investment in Bonds $100,000 (credit)

McGee is issuing the bonds, the name given to the person issuing bonds is Issurer. Issuer records a Financial Liability in their records and recognises the Asset - cash on the date of issue.

On date of Issue the Bond are recorded at Fair Value or Dirty Price (price including interest) of $100,000.