Question

On January 1, a company issues bonds dated January 1 with a par value of $480,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 10% and the bonds are sold for $461,461. The journal entry to record the issuance of the bond is:

Answer 1

Answer:

The entry will be,

Cash                                           461461 Dr

Discount on Bonds Payable     18539 Dr

       Bonds Payable                             480000 Cr

Explanation:

The bonds are being issued at a discount because the rate of interest offered by the bonds is less than that is prevailing in the market. Thus, the bonds will be issued at a discount of,

Discount on Bonds Payable = 480000 - 461461

Discount on Bonds Payable = 18539

The entry will be to record the receipt of cash by debiting the cash account by 461461 and debiting the discount on bonds payable by 18539 and recording a credit against these debits of 480000 as bonds payable