Final answer:
To journalize the issuance of a $140,000, 11%, 10-year bond payable at 97, debit Cash for $135,800, debit Discount on Bonds Payable for $4,200, and credit Bonds Payable for $140,000. This entry records the bond issuance at a discount on January 1, 2024.
Step-by-step explanation:
The student's question is about how to journalize the issuance of a bond payable when a company issues a bond for less than its face value (at a discount). On January 1, 2024, Omar Company issued a $140,000, 11%, 10-year bond payable at 97, meaning that the bond was issued at 97% of its face value. Since the bond is issued at a discount, it will sell for less than its face value of $140,000. To journalize this transaction, we need to debit cash for the amount received, debit Discount on Bonds Payable for the discount, and credit Bonds Payable for the face amount of the bond.
The journal entry on January 1, 2024, would be:
- Debit Cash $135,800 (calculated as $140,000 x 97%)
- Debit Discount on Bonds Payable $4,200 (calculated as $140,000 - $135,800)
- Credit Bonds Payable $140,000
This entry reflects the issuance of the bond at a discount and properly accounts for the initial transaction.