 In this presentation, we will take a look at the journal entry related to the issuance of bonds at par value. Support accounting instruction by clicking the link below, giving you a free month membership to all of the content on our website, broken out by category, further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files, and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. When considering the issuance of bonds, remember that what we're doing is we're giving out basically a promise. Similar to a note that we would have, except that a note is coming from the bank, whereas a bond we could give the bond to anyone. We could sell the bonds to the public, in other words. The other difference is going to be that when we talk about a note, we're typically saying that the thing will change on the note with negotiation will be the amount of the note. Let's say we have 100,000 notes, and then we adjust the interest rate in order to make an agreement. So the thing that kind of changes within a note for bargaining purposes is the interest rate. On a bond, however, if the bond was already produced, already made, then it is what it is. It's already been written out here. So the amount on the bond is fixed then, the rate is fixed, the amount of the due date is fixed, everything is fixed once the bond has been generated. So then how do we trade bonds if the interest rate has differed? The market rate is different than the bond rate. Then we're not going to be able to negotiate the bond because we can't adjust the rate to something that we'll sell, and therefore what are we going to do? We're going to change the amount we sell it for. So note what we can't change. We can't change the amount on the bond. We can't change the interest rate on the bond. What we can do is sell this bond for something different than the face amount. So that's what's going to be different from bonds and notes. Now a bond could, if we made the bond at this point in time and we knew exactly what the market rate was to sell it for, then we would make the rate on the bond equivalent to the market rate, which would be great. And that would be the easiest thing to do, it would be the easiest journal to record. That's what we will record now. If however the bond had been on the market or there's some type of time delay between the making of the bond and the selling of the bond, because we can trade these bonds at any given time, then the market rate will differ almost inevitably from the stated rate on the bond. And we're going to have to then do something if we want to sell it. That something's going to be to sell it for more or less discount or premium of the face amount of the bond. So if we sell it for exactly the amount of the bond, then that's the easiest scenario. Remember that this only happens if the market rate and the rate on the bond are the same, the bond rate and the market rate are the same, then we'll sell it for whatever the bond is for. So if we had bonds with a face amount of 240,000, we're going to get 240,000 for the bonds, and then we're just going to credit bonds payable for the 240,000. This would be very similar to just taking out a loan from the bank. If we took out a loan from the bank, it doesn't even matter what the interest rate would be, because we're going to pay the interest in the future. It doesn't affect the transaction at this point in time. So the same would be for the bond. If the bond market rate was the same as the rate on the bond, then we would just issue the bonds for the face amount of the bond. And there would be no discount or premium. And it would just be similar to the journal entry we would have for taking out a loan. We would debit cash. Cash is going to increase. And we're going to increase the liability that we owe. So cash here started out at $270,000. This is our beginning trial balance. Debits are non-bracketed. Credits are bracketed. Debits minus the credits are zero, meaning debits equal to credits. Net income is currently at $700,000. This $700,000 minus no expenses. So cash is going to go up from $270,000. Debiting cash, $240,000 to $960,000. Bonds payable, the liability, recorded on the other side. It's going to go from zero up in the credit direction to $240,000. So note the results here then. We got cash. That's the point. We want to get capital to increase possibly because we want to produce something or make something to help us generate revenue in the future. So possibly we want to buy a new building or possibly we want to put money to research or development and development. So we're going to put money into cash and then hopefully use it to generate revenue. The other side of it goes to a liability because we owe it back in the future, similar to if it was a note to payable, meaning we're going to owe this $240,000 back at the end of the bond term. And we will pay interest, but note the interest doesn't even really matter when we record the bond because if the market rate is the same as the rate on the bond, then we're just going to record interest as we would like a note. We're just going to record it when it's due. We haven't incurred any interest yet. That only happens as time passes. So it doesn't even matter what the interest rate is. If we issued the bond at the face amount, we will record the interest as time passes because that's when we incurred the interest. So at this point in time, note that there's no effect on the income statement, no effect on net income. We still have the sales minus the expenses of the 700.