How would the journal entry look if you sold a 8% bond with a face value of $11,000 for $9,500? Bond will mature in 10 years.
To record the sale of a bond, you would need to create a journal entry that reflects the transaction. Here's how the journal entry would look for the given scenario:
1. Determine the bond's carrying value.
The carrying value of a bond is its face value adjusted for any discounts or premiums. In this case, the bond is sold at a discount, so we need to calculate the carrying value.
Face Value of Bond: $11,000
Selling Price: $9,500
Discount ($11,000 - $9,500): $1,500
2. Create the journal entry.
The journal entry consists of two parts: the debit side (assets and expenses) and the credit side (liabilities and equity). Since you sold the bond, it is considered an asset, and the difference between the selling price and the carrying value is considered a gain/loss.
Debit:
Cash (Selling Price): $9,500
Loss on Sale of Bond: $1,500 (This represents the difference between the selling price and carrying value.)
Credit:
Bonds Payable (Face Value): $11,000
To summarize, the journal entry would be as follows:
Debit:
Cash: $9,500
Loss on Sale of Bond: $1,500
Credit:
Bonds Payable: $11,000
Note: The "Loss on Sale of Bond" account is an expense account that represents the difference between the selling price and the carrying value of the bond. If the bond were sold at a premium, you would use a "Gain on Sale of Bond" account instead.