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Yanik Corporation issues 5,000, 10-year, 8%, $1,000 bonds dated January 1, 2020, at 97. The...

Question:

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:

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:

Account Debit Credit Explanation
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.


Learn more about this topic:

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Long-Term Debt: Definition, Cost & Formula

from Financial Accounting: Help and Review

Chapter 8 / Lesson 7
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