Question

Issuance of bonds payable at a premium On June 1, 2022, A Company issued at 105 plus accrue interest 4,000 bonds of 9%, P1,000 face amount. The bonds are dated January 1, 2022 and mature on January 1, 2032. Interest is payable semiannually on January 1 and July 1 . The entity paid bond issue cost of P200,000. Requirements: a. What is the net cash received from the bond issuance? b. Provide the related journal entries.

Answer 1

The net cash received from the bond issuance is P4,200,000. The journal entries for the bond issuance are: Debit Cash - P4,200,000; Credit Bonds Payable - P4,200,000; Debit Bond Issue Cost - P200,000; Credit Cash - P200,000.

Step-by-step explanation:

The net cash received from the bond issuance can be calculated by multiplying the face amount of the bonds by the issuance price. In this case, the face amount is P1,000 and the issuance price is 105, so the net cash received is P1,000 x 105% = P1,050 per bond. Since 4,000 bonds were issued, the total net cash received is P1,050 x 4,000 = P4,200,000.

The related journal entries for the bond issuance are as follows:

1. To record the cash received from the bond issuance:

• Debit: Cash - P4,200,000
• Credit: Bonds Payable - P4,200,000

To record the bond issue cost:

• Debit: Bond Issue Cost - P200,000
• Credit: Cash - P200,000

Answer 2

The student's question pertains to calculating the net cash received from issuing bonds at a premium and providing the related journal entries. The net cash received includes the premium on issuance, the accrued interest, and subtracts the bond issue costs. The journal entries will reflect these transactions.

Step-by-step explanation:

The student has asked about the net cash received from the bond issuance and the associated journal entries when A Company issued bonds on premium. The bonds have a face amount of P1,000 each, a 9% interest rate, and were issued at 105 (5% premium), and there are 4,000 bonds in total. Additionally, accrued interest since January 1, 2022, needs to be accounted for, and the company incurred P200,000 in bond issue costs.

To calculate the net cash received, first determine the cash received from issuing the bonds at a premium. Then add the accrued interest for the period from January 1, 2022, to June 1, 2022, and finally subtract the bond issue costs.

For the journal entries, we need to record the cash received, the bond payable at face value, the premium on bonds payable, the interest expense accrued up to the date of issue, the bond issue costs, and the interest payable.