The Amazing Widget Company issues $500,000 of 6%, 10-year bonds at 103 on March 31, 2014. The bonds pay interest on March 31 and September 30. Assume that the company uses the straight-line method for amortization. The journal entry to record the issuance would include a:

Question

Quizplus · Accepted Answer

The company received $515,000 ($500,000 x 103%) in cash from the issuance of the bonds, so the journal entry would include a debit to Cash for $515,000. The entry would also include a credit to Bonds Payable for the face value of the bonds ($500,000) and a debit to Premium on Bonds Payable for the difference between the cash received and the face value ($15,000). This premium will be amortized over the life of the bonds using the straight-line method.

The Amazing Widget Company Issues $500,000 of 6%, 10-Year Bonds