Yanik Corporation issues 5,000, 10-year, 8%, $1,000 bonds dated January 1, 2020, at 97. The journal entry to record the issuance will show a:
A. debit to Discount on Bonds Payable for $150,000.
B. credit to Cash for $4,850,000.
C. debit to Cash of $5,000,000.
D. credit to Bonds Payable for $4,850,000.
Bonds payable are long-term debt instruments issued by companies in exchange for capital. Bonds may be issued at a premium, discount, or at face value, depending on their interest rates in comparison to the market rate. Any premium or discount on a bond is amortized over the bond's useful life.
Answer and Explanation:
Take a look at the journal entry which will be made:
|Cash||$4,850,000||Record inflow of cash from bonds (5,000 x $1,000 x 0.97)|
|Discount on Bonds Payable||$150,000||Record discount on bonds ($5,000,000 - $4,850,000)|
|Bonds Payable||$5,000,000||Record bonds payable at face value (5,000 x $1,000)|
The correct answer is A. debit to Discount on Bonds Payable for $150,000.
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from Financial Accounting: Help and ReviewChapter 8 / Lesson 7