@Amor D
If bonds are issued between interest dates, the issuer will receive more cash than they are supposed to receive under a normal bond transaction. eg. if you issue 10% bond with face amount of $50 on 01/01/2014 but the bond date is 09/01/2013.
Assume that $45 is the cash to be received during issuance, so you will record it as follows.
Cash……..$45dr
Discount……$5dr
Bond Payable………..50
Notice that the above GL is simple? Yes, but hold on tight, the bond has a prior year date so obviously theres been some interest accrued on the bond before issuance. The purchaser will pay this accrued interest to the issuer when the bond is issued. So the issuer will receive more money from this bond, but the issuer will pay this money back to the purchaser at the earliest interest payment date
This is how the issuer will record this transaction ( lets assume accrued interest is $2)
Cash(bond issuance)…….. $45dr
Cash(Accrued Interest)……..$2
Discount on bond……………..$5
Interest payable(cash received from accrued interest)…………..$2cr
Bond Payable…………………………………………………………….$50cr
Hope this helps?
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