Question

Brief Exercise 9-45 (Algorithmic)
Issuance of Long-Term Debt

Natalie Corp. provides medical supplies to hospitals located in Western Washington and Oregon. This year, Natalie Corp. issued 6,200 bonds with a $1,000 face value. The nominal rate for each bond is 7%.

Required:

Prepare the necessary journal entries to record the issuance of these bonds assuming the bonds were issued (a) at par, (b) at 103, and (c) at 96.

a.
b.
c.

Answer 1

a.	Account titles and explanation	Debit	Credit
	Cash	$ 62,00,000
	Bonds payable		$       62,00,000
	(To record issuance of bonds at par)
	Working:
	Cash proceeds from issuance of bonds	=	Number of bonds	*	Issue price of a bond
		=	6200	*	$         1,000
		=	$       62,00,000
b.	Account titles and explanation	Debit	Credit
	Cash	$ 63,86,000
	Bonds payable
	Premium on bonds payable		$       62,00,000
	Premium on bonds payable		$          1,86,000
	(To record issuance of bonds at premium)
	Working:
# 1	Cash proceeds from issuance of bonds	=	Number of bonds	*	Issue price of a bond
		=	6200	*	$         1,000	*	103%
		=	$       63,86,000
# 2	Premium on bonds payable	=	Cash proceeds from bonds payable	-	Face value of bonds
		=	$       63,86,000	-	$ 62,00,000
		=	$          1,86,000
c.	Account titles and explanation	Debit	Credit
	Cash	$ 59,52,000
	Discount on bonds payable	$   2,48,000
	Bonds payable		$       62,00,000
	(To record issuance of bonds at discount)
	Working:
# 1	Cash proceeds from issuance of bonds	=	Number of bonds	*	Issue price of a bond
		=	6200	*	$         1,000	*	96%
		=	$       59,52,000
# 2	Discount on bonds payable	=	Face value of bonds	-	Cash proceeds from bonds payable
		=	$       62,00,000	-	$ 59,52,000
		=	$          2,48,000