Question

On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at face value. They had a 20 year term and a stated rate of interest of 7% payable in cash on December 31 of each year. Which of the following shows the journal entry required to recognize the bond issue on January 1, Year 1?

Answer 1

Dr Cash account 50,000

Cr Bonds Payable account 50,000

Step-by-step explanation:

The company received $50,000 in cash. Since cash is an asset and it increased when the bonds were issued, it should be debited.

The company has to pay bonds worth $50,000. Since bonds payable is a liability and it increased when the bonds were issued, it should be credited.