Exercise

1. Issuance of bonds at face value (at 100)

        No discount or premium on bonds payable is recorded.

        Company B issued $2,000,000 six-year bonds at face value.

        Prepare the journal entry to record this transaction.

Cash

2,000,000

   Bonds payable

2,000,000

2. Issuance of bonds at a discount (e.g. at 95)

        Discount on bonds payable is recorded on debit side.

        Company R issued $2,000,000 six-year bonds at 95% of face value.

        Prepare the journal entry to record this transaction.

Cash

1,900,000

Discount on bonds payable

100,000

   Bonds payable

2,000,000

3. Issuance of bonds at a premium (e.g. at 105)

        Premium on bonds payable is recorded on credit side.

        Company T issued $2,000,000 six-year bonds at 105% of face value.

        Prepare the journal entry to record this transaction.

Cash

2,100,000

   Bonds payable

2,000,000

   Premium on bonds payable

100,000

4. Presentation of bonds payable on the balance sheet

        Company B issued $2,000,000 six-year bonds at face value.

        How is the bonds payable presented on the balance sheet?

        Bonds payable is presented in the long-term liabilities section of the balance sheet.

        Company R issued $2,000,000 six-year bonds at 95% of face value.

        How is the bonds payable presented on the balance sheet?        

        Discount on bonds payable is subtracted from bonds payable.

        

Bonds payable

2,000,000

Less: Discount on bonds payable

(100,000)

1,900,000

        Company T issued $2,000,000 six-year bonds at 105% of face value.

        How is the bonds payable presented on the balance sheet?

                Premium on bonds payable is added to bonds payable.

Bonds payable

2,000,000

Add: Premium on bonds payable

100,000

2,100,000

5. Retirement of bonds payable

        At December 31, 20x1, Company S had the following balances:

Bonds payable

3,000,000

Add: Premium on bonds payable

120,000

3,120,000

        

[Note]

On January 1, 20x2, Company S paid $2,900,000 in cash to repurchase the bonds payable. Prepare the journal entry to record this transaction.

        

Bonds payable

3,000,000

Premium on bonds payable

120,000

   Cash

2,900,000

   Gain on redemption of bonds payable

220,000