There are a number of different costs incurred in the issuance of bonds, such as engraving and printing costs, legal and accounting fees, and commissions and promotion costs. According to APB Opinion No. 21, these costs should be debited to a deferred charge account (an asset) and then be amortized over the life of the bond. Generally the straight-line method of amortization may be used.
Instance:
On January 1, 19X1, the Grandeur Corporation issues a $200,000, 5-year bond at par. It also pays $4,000 in printing costs. The entries are:
On January 1, 19X1, the Grandeur Corporation issues a $200,000, 5-year bond at par. It also pays $4,000 in printing costs. The entries are:
Jan. 1
Cash 200,000
Bonds Payable 200,000
Bonds Payable 200,000
Unamortized Bond Issue Costs 4,000
Cash 4,000
Dec. 31
Bond Issue Expense 800
Unamortized Bond Issue Costs 800
Unamortized Bond Issue Costs 800
(To amortize the $4,000 cost over the 5-year life. )
How to recognize Bond Issue Cost
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