Question

Five thousand bonds with a face value of $1,000 each, are sold at 97. The entry to record the issuance is:

A) Cash- Dr 4,850,000, Bonds Payable- Cr 4,850,000
B) Cash- Dr 4,850,000, Discount on Bonds Payable- Dr 150,000, Bonds Payable- Cr 5,000,000
C) Cash- Dr 4,850,000, Premium on Bonds Payable- Cr 150,000, Bonds Payable- Cr 5,000,000
D) Cash- Dr 5,000,000, Discount on Bonds Payable- Cr 150,000, Bonds Payable- Cr 4,850,000

Answer 1

The correct entry to record the bond issuance of five thousand bonds with a face value of $1,000 each when sold at 97 is option B: debit Cash for $4,850,000, debit Discount on Bonds Payable for $150,000, and credit Bonds Payable for $5,000,000.

Step-by-step explanation:

When five thousand bonds with a face value of $1,000 each are sold at 97, this means the bonds are sold at 97% of their face value. The correct entry to record the issuance is to debit Cash for the amount received, debit Discount on Bonds Payable for the difference between the face value and the cash received, and credit Bonds Payable for the full face value of the bonds. Therefore, the correct entry is:

B) Cash- Dr 4,850,000, Discount on Bonds Payable- Dr 150,000, Bonds Payable- Cr 5,000,000

This reflects that the company received $4,850,000 in cash (5,000 bonds × $1,000 face value × 97%) and recognizes a discount of $150,000, which is the difference between the face value ($5,000,000) and the amount received ($4,850,000).