Question

Frog Brand issues a $100,000 10 year bond with a stated interest rate of 6% while the market interest rate is 7% on January 1, 2020. On January 1, 2020 Frog Brand receives cash for the issue price of $92,894 for the bond and will have a balance of _____________. A. $7,106 in the Discount on Bonds Payable account B. $6,000 in the Discount on Bonds Payable account C. $7,106 in the Premium on Bonds Payable account D. $6,000 in the Premium on Bonds Payable account

Answer 1

The correct option is A,$7,106 in the Discount on Bonds Payable account

Step-by-step explanation:

The bonds were issued at $92,894 while the face value was $100,000,which shows that the bonds were issued at a discount since face value was higher than the cash proceeds.

In addition, the discount on bonds payable would be the difference between the face value and the cash proceeds as computed thus:

Discount on bonds payable=face value-cash proceeds

=$100,000-$92,894=$7106

Answer 2

Option A => A. $7,106 in the Discount on Bonds Payable account.

Step-by-step explanation:

So, from the question we are given the following parameters or data or information:

''Frog Brand issues a $100,000 10 year bond with a stated interest rate of 6% while the market interest rate is 7% on January 1, 2020. On January 1, 2020 Frog Brand receives cash for the issue price of $92,894 for the bond''

Hence, the discount on issue of bond can be calculated by using the formula below;

(Issued Bond) - ( the received cash on issue).

= $ 100,000 - $92,894 = $7,106.

Therefore, Frog Brand will have a balance of $7,106 in the Discount on Bonds Payable account.