Question

On january 1 of 2015, parson freight company issues 9.0%, 10-year bonds with a par value of $3,400,000. the bonds pay interest semi-annually. the market rate of interest is 10.0% and the bond selling price was $3,168,967. the bond issuance should be recorded as:

Answer 1

Here the price of the bond ($3,168,967) is lower than the Par value of the bond ($3,400,000). Therefore, this bond is issued at a discount.

Bon discount amount = $3,400,000 - $3,168,967

=231,033

Journal entry for Bond issuance:

Cash $3,168,967

Discount on Issue of Bond $231,033

Bonds payable $3,400,000