Question

Skysong Inc. issued $4,490,000 par value, 7% convertible bonds at 98 for cash. If the bonds had not included the conversion feature, they would have sold for 95. Prepare the journal entry to record the issuance of the bonds.

Answer 1

Cash 4,400,200 debit

Discount on BP 89,800 debit

Bonds Payable 4,490,000 credit

Step-by-step explanation:

The company should represent reality which is what actually occur:

the company issued bonds with a face value of 4,490,000

Then, it receive cash for 98/100 of this ammount:

4,490,000 x 98/100 = 4,400,200

The difference between face value and the proceeds will be a discount when negative and premium when above:

4,400,200 - 4,490,000 = -89,800

as it is negative, this is a discount.