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Larkspur, Inc. issued $432,000, 7%, 20-year bonds on January 1, 2020, at 104. Interest is payable annually on January 1. Larkspur uses straight-line amortization for bond premium or discount. Prepare the journal entry to record the issuance of the bonds.

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Answer and Explanation:

The Journal entry to record the issuance of the bond is as follows:

Cash Dr  $449,280 ($432,000 × 1.04)

        To Bond payable $432,000

        To Premium on bond payable $17,280

(Being the issuance of the bond is recorded)

here the cash is debited as it increased the assets and credited the bond payable and the premium on bond payable as it also increased the liabilities