Question

(Quinn A., Ariel C., Kassandra J., Sarah O., and Garrison S.) July 1, 2019, Leeward Corporation issued $2,000,000 face value bonds with a contractual interest rate of 6% and 20-year term. Prepare the following journal entries: Issuance of the bonds at 104 Issuance of the bonds at 100 Issuance of the bonds at 95 Account Debit Credit Date (Keiry A.R., John Dominic D.S., Zi Jun L, Lindsey P., Cindy S.) Refer to Problem #1 - Assuming the bonds were issued at face value and interest is paid annual on July 1, prepare the following journal entries: Interest accrual on bonds at 12/31/2019 Payment of interest on 7/1/2020 Early retirement (payoff) of bonds at 98 on 7/2/2020 Debit Credit Account

Answer 1

Answer to Q#1 (First question in the list): Journal entry if bonds are issued at 104: Debit $2,080,000 Date General Journal Jul. 1, 2019 Cash Bonds payable Premium on bonds payable Credit ($2000000 x 104%] $2,000,000 [Face value of the bonds issued] $80,000 (Bal. Figure --> $2080000 - $2000000 = $80000] Journal entry if bonds are issued at 100: Date General Journal Jul. 1, 2019 Cash Bonds payable Debit $2,000,000 Credit [$2000000 x 100%] $2,000,000 (Face value of the bonds issued] Journal entry if bonds are issued at 95: Date General Journal Jul. 1, 2019 Cash Discount on bonds payable Bonds payable Debit $1,900,000 $100,000 Credit ($2000000 x 95%] [Bal. Figure --> $2000000 - $1900000 = $100000] $2,000,000 (Face value of the bonds issued]

NOTE: --> If bonds are issued at price more than the face value, they are considered to be issued at premium as bond issuer will receive cash more than face value of the bonds issued. Accordingly, when bonds were issued at 104, premium on bonds payable arose. --> If bonds are issued at price equalt to their face value, they are considered to be issued at par as bond issuer will receive cash equal to face value of the bonds issued. Accordingly, when bonds were issued at 100, neither premium nor discount on bonds payable arose. --> If bonds are issued at price less than the face value, they are considered to be issued at discount as bond issuer will receive cash less than face value of the bonds issued. Accordingly, when bonds were issued at 95, discount on bonds payable arose.