Question

on january 1, year 1, hanover corporation issued bonds with a $72,500 face value, a stated rate of interest of 7%, and a 5-year term to maturity. the bonds were issued at 98. hanover uses the straight-line method to amortize bond discounts and premiums. interest is payable in cash on december 31 each year. the journal entry used to record the issuance of the bond and the receipt of cash would be: (round your answer to the nearest whole dollar amount.)

Answer 1

The journal entry to record the issuance of the bond and the receipt of cash would be: Debit: Cash, Credit: Bonds Payable - Face Value, Credit: Discount on Bonds Payable.

Step-by-step explanation:

The journal entry to record the issuance of the bond and the receipt of cash would be as follows:

1. Debit: Cash ($72,500 × 0.98 = $71,050)
2. Credit: Bonds Payable - Face Value ($72,500)
3. Credit: Discount on Bonds Payable ($72,500 - $71,050 = $1,450)

The entry debits cash for the amount received, credits bonds payable for the face value of the bonds, and credits discount on bonds payable for the difference between the face value and the amount received. The discount on bonds payable will be amortized over the term of the bonds using the straight-line method.