On the date of issue, Chudzick Corporation sells $5 million of 5-year bonds at 97. The entry to record the sale will include the following debits and credits: Bonds Payable Discount on Bonds Payable
A) $4,850,000 Cr. $0 Dr.
B) $5,000,000 Cr. $150,000 Dr.
C) $5,000,000 Cr. $1,250,000 Dr.
D) $5,000,000 Cr. $15,000 Dr.

Question

Quizplus · Accepted Answer

The bonds were sold at 97, which means that the company received 97% of the face value of the bonds. Therefore, the bonds were sold for $5,000,000 x 0.97 = $4,850,000 cash. The discount on bonds payable is the difference between the cash received ($4,850,000) and the face value of the bonds ($5,000,000), which is $150,000. Therefore, the journal entry to record the sale will be:

Debit: Cash $4,850,000 
Credit: Bonds Payable $5,000,000 
Credit: Discount on Bonds Payable $150,000

On the Date of Issue, Chudzick Corporation Sells $5 Million