Question

Garcia Company issues 11.0%, 15-year bonds with a par value of $440,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 9.0%, which implies a selling price of 114. Prepare the journal entry for the issuance of these bonds for cash on January 1.

Answer 1

Answer:

Entries are given below

Explanation:

The entry that should be made on January 1 would be

Cash                                 501,600(w1)            Debit

Premium on bonds         61600(w2)              Credit      

Bonds payable                440000                   Credit      

Working 1

Cash proceeds = $440,000/100 x $114

Cash proceeds = $501600

Working 2

Premium = selling price of bond - Face value of the bond

Premium =  $501,600 - $440,000

Premium = 61600