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Webster Company issues $1,000,000 face value,6%,5-year bonds payable on December 31,2018.Interest is paid semiannually each June 30 and December 31.The bonds sell at a price of 97;Webster uses the straight-line method of amortizing bond discount or premium.
-The entry made by Webster Company to record issuance of the bonds payable at December 31,2018,includes:
A)A debit to Cash of $1,000,000.
B)A debit to Discount on Bonds Payable of $30,000.
C)A credit to Bonds Payable of $970,000.
D)A credit to Bond Interest Payable of $30,000.

Question

Quizplus · Accepted Answer

The bonds were issued at a discount (97% of face value), so the company receives less cash than the face value of the bonds. The difference between the face value ($1,000,000) and the cash received (97% of $1,000,000 = $970,000) is $30,000, which is recorded as a debit to Discount on Bonds Payable to account for the discount on issuance.

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