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Class, Riley Natural Fertilizer, Inc. issued $780,000 of 8% face value bonds on January 1, 2016, for $763,800. The bonds are due December 31, 2018, and pay interest semiannually on June 30 and December 31. Riley uses the straight-line amortization method.
What journal entry would we make on Riley's books on January 1, 2016?
Explain why you have chosen the accounts you have chosen.
Date | Accounts Name and Explanation | Debit | Credit | |
January 1, 2016 | Cash | 763,800 | ||
Discount on bonds payable | 16,200 | (780000 - 763800) | ||
Bonds Payable | 780,000 | |||
(To record issuance of bonds on discount) | ||||
We have choose following accounts | ||||
Accounts name | Reason | |||
Cash | Because we have received cash against issue of bonds | |||
Bonds payable | We have incurred a liability which we need to pay in future. We need to recognize such liability. | |||
Discount on bonds payable | The cash we received is less than the liability we raised. The difference amount is actually our expense. However this is not a one period expense, this is expense spread over the life of bonds. This expense has a nature of interest expense hence it is amortized at the time of booking interest amount. |
Please complete, thank you! Class, Riley Natural Fertilizer, Inc. issued $780,000 of 8% face value bonds...
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