On January 1, 2016, Sanchez Corporation issued 5-year $200,000 bonds with a 4% s

Question

On January 1, 2016, Sanchez Corporation issued 5-year $200,000 bonds with a 4% stated rate of interest at 97. Sanchez Corporation pays the interest annually on December 31 and uses the straight-line amortization method. Which of the following choices represents the general journal entry required to record the issuance of the bonds?

Debit Credit

A. Cash 200,000 Premium on Bonds Payable 6,000 Bonds Payable 194,000 Debit Credit

B. Cash 200,000 Bonds Payable 200,000 Debit Credit

C. Cash 194,000 Discount on Bonds Payable 6,000 Bonds Payable 200,000 Debit Credit

D. Cash 194,000 Premium on Bonds Payable 6,000 Bonds Payable 200,000

Explanation / Answer

Correct answer is C, Bond are issued at 97% of par that is $200,000 of Bond therefore Sanchez corporation will received $194,000 as cash and give $6,000 as discount but bond will be payable for 200,000

Cash a/c Debit 194,000

Discount on Bond a/c Dr 6,000

Bond Payable a/c Cr 200,000

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