Question

On January 1, Parson Freight Company issues 7 % , 10-year bonds with a par value of $2,000,000. The bonds pay interest semiannually. The market rate of interest is 8% and the bond selling price was $1,864,097. The bond issuance should be recorded as: Multiple Choice Debit Cash $1,864,097; debit Discount on Bonds Payable $135,903; credit Bonds Paysble $2,000,000. Debit Cash $1,864,097; credit Bonds Payable $1,864,097, Debit Cash $2,000,000; credit Bonds Payable $2,000,000 Debit Cash $2,000,000, credit Bonds Payable $1864,097; credit Discount on Bos Payable $135,903. Debit Cash $1864,097; debit Interest Expense $135,903, credit Bonds Payable $2,000,000 Charger Company's most recent balance sheet reports total assets of $27,000,000, total liabilities of $15,000,000 and t debt to equity ratio for the period is (rounded to two decimals) and total equity of $12,000,000.

Answer 1

There are two question in this.

For the first question, the correct option is

Debit Cash $1,864,097; Debit Discount on Bonds Payable $135,90; Credit Bonds Payable $2,000,000

For the second question, the correct option is

Debt to equity ratio is 1.25

Step-by-step explanation:

Question 1

The bonds' par value is $2,000,000 and the selling price is $1,864,097. The bonds selling price is less than the par value. Therefore, the bonds are issued at a discount of $135,903 ($2,000,000 - $1,864,097).

The journal entry to record the issue of the bonds is as follows:

Debit Cash $1,864,097; Debit Discount on Bonds Payable $135,90; Credit Bonds Payable $2,000,000

Question 2

Debt to equity ratio = Total liabilities / Total equity = $15,000,000 / $12,000,000 = 1.25

Debt to equity ratio is 1.25