Question

On January 1, Parson Freight Company issues 7.5%, 10-year bonds with a par value of $2,600,000. The bonds pay interest semiannually. The market rate of interest is 8.5% and the bond selling price was $2,423,327. The bond issuance should be recorded as:

Answer 1

• Cash : $2,423,327
• Discount on Issue of bond: $176,673
• Bond payable $2,600,000

Step-by-step explanation:

Given:

• Par value $2,600,000
• Selling price: $2,423,327.

From the information, we can see that the bond market value is smaller than its par value. Hence, the bond is issued at a discount.

The discount amount :

Par value - Selling price

= $2,600,000 - $2,423,327

= $176,673

So the Journal entry for Bond issuance:

• Cash : $2,423,327
• Discount on Issue of bond: $176,673
• Bond payable $2,600,000

Hope it will find you well