Sunny Day Company sells $250,000 of 1 1%, 10-year bonds for 70.2616 on April 1,

Question

Sunny Day Company sells $250,000 of 1 1%, 10-year bonds for 70.2616 on April 1, 2016. The market rate of interest on that day is 17.5%. Interest is paid each year on April 1. The entry to record the sale of the bonds on April 1 would be as follows: (Intermediary and final answer calculations are rounded to the nearest whole number.) O A. Cash 250,000 Discount on Bonds Payable Bonds Payable 74,346 175,654 OB. Cash 175,654 Discount on Bonds Payable 74,346 Bonds Payable 250,000 OC. Cash 250,000 Bonds Payable 250,000 O D. Cash 175,654 Bonds Payable 175,654

Explanation / Answer

Solution: Answer is B. Debit Credit Cash 175,654 Discount on Bonds Payable 74,346 Bonds Payable 250,000 Working Notes: Bond is issued for 70.2616 Cash proceed from bond sales = Face value x 70.2616/100 =250,000 x 70.2616/100 =175,654 As bond of face value $250,000 is issued for $175,654 , so bond is issued at discount Discount on bonds payable = face value - cash proceed =250,000 - 175,654 =74,346 therefore , Journal entry for issuance of bonds General Journal Debit Credit Cash 175,654 Discount on Bonds Payable 74,346 Bonds Payable 250,000 Please feel free to ask if anything about above solution in comment section of the question.

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