On January 1,a company issues bonds dated January 1 with a par value of $400,000.The bonds mature in 5 years.The contract rate is 7%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $383,793.The journal entry to record the issuance of the bond is:
A)Debit Cash $400,000; credit Discount on Bonds Payable $16,207; credit Bonds Payable $416,207.
B)Debit Cash $383,793; debit Discount on Bonds Payable $16,207; credit Bonds Payable $400,000.
C)Debit Bonds Payable $400,000; debit Bond Interest Expense $16,207; credit Cash $416,207.
D)Debit Cash $383,793; debit Premium on Bonds Payable $16,207; credit Bonds Payable $400,000.
E)Debit Cash $383,793; credit Bonds Payable $383,793.

Question

Quizplus · Accepted Answer

The journal entry to record the issuance of a bond includes a debit to Cash for the amount received ($383,793), a debit to Discount on Bonds Payable for the difference between the face value and the selling price ($16,207), and a credit to Bonds Payable for the face value of the bond ($400,000). Therefore, option B correctly records the issuance of the bond. Option A records a discount that is too high, option C records bond interest expense which is not applicable at the time of issuance, option D records a premium which is not present in this scenario, and option E records only the cash received and not the discount on the bond.

On January 1,a Company Issues Bonds Dated January 1 with a Par