Econnect ACCOUNTING instructions help Question 2 (of 34) Save & Exit Submt You a

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Econnect ACCOUNTING instructions help Question 2 (of 34) Save & Exit Submt You aid not recerve credit for this question in a previous atempt on January 1 or 2015, Parson Freight Company issues 75 %, 10-year bonds with a par value of $2,600,000. The bonds pay the bond seling price was $2,423,327 The bond issuance should be recorded as terest semsann any The market rate of interests 8 5% and O Debit Cash $2.600,000. credin Bonds Payable $2.600.000 O Debit Cash $2.423,327 credir Bonds Payable $2.423,327 Debit Cash $2,600.000 credit Bonas Pay O Debit Cash $2 423,327, debir Discount on Bonds Payable $176.673, credtit Bonds Payable s2600,000 O Debit Cash $2.-423 327 debit Interes Expense $176,673, credit Bonds Payable $2600000 abie $2.423327, creat Discount on Bonds Payabie $176,673

Explanation / Answer

Answer:

The correct answer is "Debit Cash $2,423,327, Debit Discount on Bonds Payable $176,673, Credit Bonds Payable $2,600,000

Par / Face Value of Bond = $2,600,000

Issue Price = $2,423,327

Discount on Bonds Payable = Face Value of Bonds - Issue Price = $2,600,000 - $2,423,327 = $176,673

Bonds are issued on discount where Issue Price is less than Face Value.

Discount on Bonds Payable are amortized over the life of bond.

Hence the journal entry to record the issue of bond at discount as follows:

Cash A/c (Issue Proceeds)....Dr. $2,423,327

Discount on BOnds Payable...Dr. $176,673

To Bonds Payable (Par Value) $2,600,000

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