A company received $783,600 for bonds having a total face value of $800,000. 1)

Question

A company received $783,600 for bonds having a total face value of $800,000.

1) Use the information above to answer the following question. What journal entry would be made to record this bond issuance?

A) Debit Cash for $800,000, credit Discount on Bonds Payable for $16,400, and credit Bonds Payable for $783,600

B) Debit Cash for $800,000 and credit Bonds Payable for $800,000

C) Debit Cash for $800,000, credit Bonds Payable for $783,600, and credit Interest Payable for $16,400

D) Debit Cash for $783,600, debit Discount on Bonds Payable for $16,400, and credit Bonds Payable for $800,000

2) Use the information above to answer the following question. If the balance sheet date corresponded with the date of the bond issue, what carrying value would be reported on the balance sheet?

A) $816,400

B) $800,000

C) $783,600

D) $791,800

Explanation / Answer

SOLUTION

(1) Correct Option is - D) Debit Cash for $783,600, debit Discount on Bonds Payable for $16,400, and credit Bonds Payable for $800,000

Bonds payable always recorded at face value.

Cash received is less than the amount of face value, which indicates that bonds are issued at discount.

(2) The carrying value would be- $783,600.

The carrying value of a bond is a face value of a bond plus any premium on bonds payable or less discount on bonds payable.

So, in this case, carrying value = $800,000 - $16,400 = $783,600

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