On January 1 of 2015,Parson Freight Company issues 7%,10-year bonds with a par value of $2,000,000.The bonds pay interest semi-annually.The market rate of interest is 8% and the bond selling price was $1,864,097.The bond issuance should be recorded as:
A)Debit Cash $2,000,000;credit Bonds Payable $2,000,000.
B)Debit Cash $1,864,097;credit Bonds Payable $1,864,097.
C)Debit Cash $2,000,000;credit Bonds Payable $1,864,097;credit Discount on Bonds Payable $135,903.
D)Debit Cash $1,864,097;debit Discount on Bonds Payable $135,903;credit Bonds Payable $2,000,000.
E)Debit Cash $1,864,097;debit Interest Expense $135,903;credit Bonds Payable $2,000,000.

Question

Quizplus · Accepted Answer

The bonds were issued at a discount because the market rate (8%) is higher than the coupon rate (7%). The cash received is $1,864,097, and the difference between the par value and the cash received ($135,903) is recorded as a discount on bonds payable.

On January 1 of 2015,Parson Freight Company Issues 7%,10-Year Bonds