Final answer:
To record the proceeds of a bond issue, one would debit Cash and credit Bonds Payable for the par value of the bond, assuming it's issued at par. Market interest rates affect whether a bond is issued at par, discount, or premium, impacting the proceeds received.
Step-by-step explanation:
The question pertains to the recording of proceeds from a bond issue on January 1, where 6% bonds with a par (or face) value of $150,000 were authorized and issued. When a company issues bonds, it typically receives cash (or proceeds) that is equal to the par value of the bonds, provided the bonds are issued at par. However, if the bonds are issued at a premium or discount (due to prevailing market interest rates being lower or higher than the bond's coupon rate, respectively), the cash received would be higher or lower than the par value.
For example, using the reference information provided, if Ford Motor Company issues a bond with a face value of $5,000 that pays an annual coupon of $150, the coupon rate is 3% ($150/$5,000). If market rates are also at 3%, the bond would likely be issued at par value. However, if market rates differ from the bond's coupon rate, the issue price will adjust accordingly.
In the case of the student's question, if the bonds were issued at par on January 1, the journal entry would simply be a debit to Cash for $150,000 and a credit to Bonds Payable for $150,000. Without additional information about the market rate of interest on January 1 or the terms of the bond issue, we cannot determine if the bonds were sold at par, a premium, or a discount. These factors decide the actual proceeds from the bond issue, which could be more or less than the par value.