Ravine Company issues $400,000, 20-year, 7% bonds at 101. Prepare a tabular summary to record the sale of these bonds on June 1, 2017. (If a transaction causes a decrease in Assets, Liabilities or Stockholders' Equity, place a negative sign (or parentheses) in front of the amount entered for the particular Asset, Liability or Equity item that was reduced.)

Dr    Cash                    $404000                         increase in asset

Cr   Bonds payable                     $400000        increase in liabilities

Cr   Bond premium                       $4000           increase in liabilities    

Explanation:

The impact of the bond issue as it affects asset,liabilities or equity is discussed below.

The issue of bond gave rise to cash of $404,000($101/$100*$400000)

The receipt of $404000 from the issue implies that cash , an asset of Ravine Company has increased by $404000.

However, for every debit entry passed in the books of account there must be a corresponding credit,hence the transaction increases the company liabilities by $404000,split into $400000 bonds payable and $4000 bond premium.

The premium is amortized to income statement over the tenure of the bond.

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