Frankum Company has issued three different bonds during 2014. Interest is payable semiannually on each of these bonds.

1. On January 1, 2014, 1,110, 8%, 5-year, $1,000 bonds dated January 1, 2014, were issued at face value.

2. On July 1, $877,400, 9%, 5-year bonds dated July 1, 2014, were issued at 103.

3. On September 1, $348,300, 7%, 5-year bonds dated September 1, 2014, were issued at 98.

Prepare the journal entries to record each bond transaction at the date of issuance.

Answer and Explanation:

The Journal entry is shown below:-

On Jan 1.

Cash Dr, 1,110,000                             (1,110 × $1,000)

           To Bonds Payable 1,110,000

(Being issuance of the bond payable is recorded)

Here be debited the cash as it increased the assets and we credited the bonds payable as  increased the liabilities

On Jan 2

Cash Dr, $903,722        ($877,400 × 1.03)

             To Premium on Bonds Payable $26,322

            To Bond Payable $877,400

(Being issuance of the bond payable is recorded)

Here we debited the cash as  it increased the assets  and we credited the premium on bonds payable and bond payable as  it increased the liabilities

On Jan 3

Cash Dr, $341,334          ( $348,300 x 0.98)

Discount on Bonds Payable Dr, $6,966

          To Bonds Payable 348,300

(Being is recorded)

Here we debited the cash as it increased the assets  and we credited the  bond payable as it also increased the liabilities and the difference is debited to the discount on bond payable