A company issues $60,000 of 5%, 10-year bonds dated January 1 that pay interest semiannually on each June 30 and December 31. If the issuer accepts $59,000 for the bonds, the issuer will record the sale with a (debit/credit) to Discount on Bonds Payable in the amount of $.
Question
A company issues 59,000 for the bonds, the issuer will record the sale with a (debit/credit) to Discount on Bonds Payable in the amount of $.
Solution
The company will record the sale with a debit to Discount on Bonds Payable in the amount of $1,000.
Here's the step by step process:
-
The company issued bonds for 59,000. This means the company has a shortfall of 60,000 - $59,000).
-
This shortfall is considered a discount on the bonds payable.
-
In accounting, a discount on bonds payable is a contra account, which means it's an account that reduces the value of an associated account when the two are netted together.
-
A debit to a contra account will increase its value. Therefore, the company will record a debit to the Discount on Bonds Payable account to reflect the $1,000 shortfall.
-
The entry in the company's books will be a debit to Discount on Bonds Payable for 59,000. The Bonds Payable account will be credited for 60,000, but the company will only have $59,000 in cash from the bond issuance.
Similar Questions
On January 1, 2024, Universe of Fun issues $890,000, 9% bonds that mature in 20 years. The market interest rate for bonds of similar risk and maturity is 10%, and the bonds issue for $813,642. Interest is paid semiannually on June 30 and December 31.Problem 9-7A (Algo) Parts 2 & 32. & 3. Record the issuance of the bonds on January 1, the interest payments on June 30, and December 31, 2024. (If no journal entry is required for a particular transaction, select "No Journal Entry Required" in the first account field. Round your answers to the nearest dollar amount.)
A $503,000 bond issue sold for $479,000. Therefore, the bonds sold:Multiple Choiceat a premium because the stated interest rate was higher than the market rate.for the $503,000 face amount less $24,000 of accrued interest.at a discount because the stated interest rate was higher than the market rate.at a discount because the market interest rate was higher than the stated rate
A bond issue with a $100,000 par value, an 8% annual contract rate, with interest payable semiannually and a 10-year life means that the issuer must repay $100,000 at the end of 10 years plus make 20 payments of $4,000.Group startsTrue or False
Compute the selling price of 10%, 10-year bonds with a par value of $320,000 and semiannual interest payments. The annual market rate for these bonds is 12%. Use present value Table B.1 and Table B.3 in Appendix B.
On January 1, Year 1, McGee Corporation issues 5%, 10-year bonds with a face amount of $100,000. On issuance date, the market rate of interest is 5%; therefore, the issue price of the bonds is $100,000. Interest is paid semiannually on June 30 and December 31. The first payment of interest on June 30 will include a:Multiple Choicedebit to Interest Expense for $2,500debit to Interest Expense for $5,000credit to Bonds Payable for $2,500credit to Bonds Payable for $5,000
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.