Q29. Issuance of bonds payable
Entity A issued $200,000 bonds and received $200,000 in cash.
Prepare a journal entry to record this transaction.
A29. Bonds payable is recorded on the credit side.
| Debit | Credit | |
| Cash | 200,000 | |
| Bonds payable | 200,000 |
[Note]
Increase in bonds payable (liability): credit
[Exercise]
Entity B issued $200,000 bonds at a discount and received $190,000 in cash.
| Debit | Credit | |
| Cash | 190,000 | |
| Discount on bonds payable | 10,000 | |
| Bonds payable | 200,000 |
[Note]
1. Increase in discount on bonds payable (contra-liability): debit
2. Discount on bonds payable is a contra-liability account, which is subtracted from bonds payable.
3. Discount on bonds payable is amortized over the life of bonds payable using the effective interest method.
[Exercise]
Entity C issued $200,000 bonds at a premium and received $205,000 in cash.
| Debit | Credit | |
| Cash | 205,000 | |
| Bonds payable | 200,000 | |
| Premium on bonds payable | 5,000 |
[Note]
1. Increase in premium on bonds payable (liability): credit
2. Premium on bonds payable is a liability account, which is added to bonds payable.
3. Premium on bonds payable is amortized over the life of bonds payable using the effective interest method.