Question

On january 1 of 2015, parson freight company issues 7%, 10-year bonds with a par value of $2,000,000. the bonds pay interest semi-annually. the market rate of interest is 8% and the bond selling price was $1,864,097. the bond issuance should be recorded as:

Answer 1

The bond issuance should be recorded as the bond issued with discount. There is a difference between the bond's par value and its selling price. If a bond sold below its par value, a discount will appear as the difference between them. For the journal entry, there will be a debit balance in cash account for $1,864,097, debit balance in the discount of the bond payable account for $ 135,903, and credit balance in the bond payable account for $2,000,000.