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
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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