What journal entry is appropriate when issuing $100 face value debt at a premium of $1 and an underwriter's discount of $2?

In this situation, the appropriate journal entry to reflect the issuance of debt at a premium and considering the underwriter's discount accurately captures the financial transactions involved.

When a bond is issued with a face value of $100 but sold for a premium, the total proceeds from the debt issuance will include not only the face value but also the premium. Here, the bond’s premium is $1, which means that while the bond's face value is $100, the effective proceeds are $101 ($100 + $1). However, the underwriter's discount of $2 reduces the cash received by the issuer.

Therefore, the journal entry reflects that the cash received from the transaction is $99 ($101 total proceeds - $2 underwriter's discount). The entry starts with the cash received, followed by the expenditure that accounts for the underwriter's fees, and finally includes the sources of financing which separate the bond's face value and the premium into their respective categories. This provides clarity in the financial records, showing both the gross issuance amount and the premium involved, while distinguishing it from the net cash received after accounting for the underwriter's fees.

Thus, the appropriate entry includes cash, an expenditure for the underwriting fees, the face value recognized as a