Question

For each event listed below, identify the accounts that should be used to record the economic event and the dollar amount for that account. You should enter the letters that correspond to the accounts that should be used, along with the related dollar amounts. Your answers will be evaluated based on whether you have included every account and the related dollar amount that is needed and not included any account that is not needed. An account can be used in analyzing more than one event.A. additional paid-in capitalB. bonds payableC. cashD. common stockE. discount on bonds payableF. equipmentG. interest expenseH. interest payableI. preferred stockJ. premium on bonds payableK. treasury stock(Example:Event: The company purchased equipment, paying cash of $15,0001,) The company issued bonds in the amount of $10,000,000, receiving cash of $9,400,000 at the time of issuance.

Answer 1

Answer: C $9,400,000 E $600,000; B $10,000,000

Explanation:

The Company Issued bonds worth $10,000,000 but only received $9,400,000 in cash.

This means that they issued the Bonds at a discount. With the discount being the difference between how much was issued and how much was received.

This discount will be sent to the Discount on Bonds Payable account.

The Cash received of $9,400,000 will be sent to the cash account.

The company will still have to pay the entire figure of $10,000,000 in bonds so the full amount will go to the Bonds Payable account.

The Journal Entry is thus,

DR Cash $9,400,000

DR Discount on Bonds Payable $600,000

CR Bonds Payable $10,000,000