Question

Paragon comma Inc.​'s trial balance shows $ 255 comma 000 face value of bonds with a discount balance of $ 1 comma 200. The bonds mature in 10 years. How will the bonds be presented on the balance​ sheet? A. Bonds payable $ 255 comma 000 will be listed as a​ long-term liability. B. Bonds payable $ 255 comma 000 will be listed as a​ long-term liability. A $ 1 comma 200 discount on bonds payable will be listed as a contra current liability. C. Bonds payable $ 253 comma 800 ​(net of $ 1 comma 200 ​discount) will be listed as a​ long-term liability. D. Bonds payable $ 255 comma 000 will be listed as a​ long-term liability. A $ 1 comma 200 discount on bonds payable will be listed as a current liability.

Answer 1

Answer:

The correct option is C,Bonds payable $ 253 comma 800 ​(net of $ 1 comma 200 ​discount) will be listed as a​ long-term liability.

Explanation:

Upon issuance of the bonds,bonds payable would be credited with $255,000,the face value of the bond while discounts on bonds payable is debited with $1,200,with cash proceeds of $253,800($255,000-$1200) debited to cash accounts.

The $1,200 debited is a contra liability,the same way accumulated depreciation is a contra asset going against the non-current asset account in the balance.

By being contra liability,it effectively reduces bonds payable balance to $253,800,as a result the bonds is shown as a long term liability in the balance sheet