Assume that the following are independent situations recently reported in the Wa

Question

Assume that the following are independent situations recently reported in the Wall Street Journal. 1. General Electric (GE) 7% bonds, maturing January 28, 2018, were issued at 110.80. 2. Boeing 7% bonds, maturing September 24, 2032, were issued at 98.40. Were GE and Boeing bonds issued at a premium or a discount? The General Electric bonds were issued at a and the Boeing bonds were issued at a . LINK TO TEXT Prepare the journal entry to record the issue of each of these two bonds, assuming each company issued $680,000 of bonds in total. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) No. Account Titles and Explanation Debit Credit 1 2

Explanation / Answer

Solution:

Part 1 - Bonds are issued at discount or premium

General Electric BOnd face value = $680,000

Issued at = 110.80 it means issued at 110.80%

Issue Price of GE bonds = 680,000*110.8% = $753,440

Issue price is higher than the face value of the bonds. It means bonds are issued at premium.

Premium on BOnds Payable (GE) = 753,440 - 680,000 = $73,440

Hence, General Electric Bonds are issued at PREMIUM.

BOEING BONDS

Issued at 98.4%. It means bonds are issued at 98.4%

Face Value of the bonds = 680,000

Issue Price of the bonds = 680,000 x 98.4% = 669,120

Issue price is less than face value, it means bonds are issued at discount.

Discount on Bonds payable = 680,000 - 669,120 =

Hence

The General Electric bonds were issued at a PREMIUM and the Boeing bonds were issued at a DISCOUNT

Part 2 -- Journal Entries

Account Titles

Debit

Credit

1)

Cash

$753,440

Bonds Payable

$680,000

Premium on Bonds Payable

$73,440

2)

Cash

$669,120

Discount on Bonds Payable

$10,880

Bonds Payable

$680,000

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Account Titles

Debit

Credit

1)

Cash

$753,440

Bonds Payable

$680,000

Premium on Bonds Payable

$73,440

2)

Cash

$669,120

Discount on Bonds Payable

$10,880

Bonds Payable

$680,000

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