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;debit 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 company received $383,793 cash, which is less than the par value of the bond, indicating that the bond was sold at a discount. The discount on the bond is the difference between the par value ($400,000) and the selling price ($383,793), which is $16,207. Therefore, the journal entry to record the bond issuance would be to debit Cash for $383,793, debit Discount on Bonds Payable for $16,207, and credit Bonds Payable for $400,000.

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