On January 1 of 2015, Parson Freight Company issues 8.0%, 10-year bonds with a p

Question

On January 1 of 2015, Parson Freight Company issues 8.0%, 10-year bonds with a par value of $2,200,000. The bonds pay interest semi-annually. The market rate of interest is 9.0% and the bond selling price was $2,050,507. The bond issuance should be recorded as:

Debit Cash $2,050,507; debit Interest Expense $149,493; credit Bonds Payable $2,200,000.

Debit Cash $2,050,507; credit Bonds Payable $2,050,507.

Debit Cash $2,050,507; debit Discount on Bonds Payable $149,493; credit Bonds Payable $2,200,000.

Debit Cash $2,200,000; credit Bonds Payable $2,200,000.

Debit Cash $2,200,000; credit Bonds Payable $2,050,507; credit Discount on Bonds Payable $149,493.

Explanation / Answer

The Answer is - " Debit Cash $2,050,507; debit Discount on Bonds Payable $149,493; credit Bonds Payable $2,200,000 :

The Journal entry for the Issue of Bond will be ;

Cash   A/c                                          Dr        $ 20,50,507

Discount on bonds payable A/c     Dr        $ 1,49,493

To Bonds payable A/c                Cr                                $ 22,00,000

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