The face amount of the 500 bonds is equal to US $500,000500 x $1,000). The cash proceeds excluding interest from the issuance of the bonds are US $515.000$500,000 103%). The US $15,000 premium is the difference between the cash issuance proceeds and the face amount of the bonds. Because the bonds were issued between interest payment dates, the issuer is also entitled to receive accrued interest for the 4 months between the prior interest date and the issuance date. The accrued interest is US $20,000 [500 bonds x $1,000 face value 12% stated rate x4 - 12)]. The issuing entity will therefore receive US $535,000 in cash$515,000 + $20,000). The resulting journal entry includes a US $535,000 debit to cash, a US $500,000 credit to bonds payable, a US $15,000 credit to premium, and a US $20,000 credit to either interest payable or interest

The gross method accounts for receivables at their face amount. If a discount is taken a sales discount is recorded and classified as an offset to sales in the income statement to yield net sales. The net method records receivables net of the applicable discount. If the payment is not received during the discount period, an interest revenue account, such as sales discounts forfeited is credited at the end of the discount period or when the payment is received. Accordingly, the application of the net method requires a sales discount forfeited but not a sales discount account.