Question

Issuing Bonds at a Discount On the first day of the fiscal year, a company issues a $3,500,000, 6% five-year bond that pays semiannual interest of $105,000 ($3,500,000 x 6% x V2), receiving cash of $3,350,000. Journalize the bond issuance. If an amount box does not require an entry, leave it blank. Interest Expense X 120,000 X Discount on Bonds Payable 15,000 X Cash X 105,000 x Feedback Check My Work Bonds Payable is always recorded at face value. Any difference in issue price is reflected in a premium or discount account.

Answer 1

Correct entry

Cash	$ 3,350,000
Discount on bonds payable	$ 150,000
Bonds payable		$ 3,500,000

Cash will be debited for the amount of cash actually received and bonds payable will be credited with the face value. Discount on bonds will be debited with an amount equal to difference between cash received on bonds issue and face value of bonds.