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Question One (8 Marks) SVZ Incorporated needs to raise capital for expansion purposes. Management is considering...

Question One
SVZ Incorporated needs to raise capital for expansion purposes. Management is considering issuing $2,000,000 of 10%, 20-year bonds dated June 1, 2017 with interest payment dates of December 1 and June 1. SVZ's year end is December 31.

Prepare the journal entry to recognize the bond under the following circumstances:

A) The bond is issued at par value.

B) The bond is sold at 97

C) The bond is sold at 102

D) The bond is sold at par plus accrued interest on August 1, 2017

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Answer #1
Date Accounts /Explanation Debit Credit
(A) June 1, 2017 Cash $2,000,000 -
Bonds payable - $2,000,000
(B) June 1, 2017 Cash ($2,000,000 X 97%) $1,940,000 -
Discount on bonds payable $60,000 -
Bonds payable - $2,000,000
(C) June 1, 2017 Cash $2,040,000 -
Premium on bonds payable - $40,000
Bonds payable - $2,000,000
(D) August 1, 2017 Cash $2,033,333 -
Bonds payable - $2,000,000
Interest payable - $33,333
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