If a government issues bonds with a face value of $5,000,000 at a 2% discount and incurs $55,000 of issuance costs, the General Long-Term Liabilities accounts will report a liability of

Question

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The bonds are issued at a discount of 2%, so the cash received by the government will be the face value of $5,000,000 minus 2% of $5,000,000, which is $100,000. Therefore, the cash received by the government will be $4,900,000.

In addition, the government incurs $55,000 of issuance costs, which will reduce the amount of cash received by the government. Therefore, the liability reported in the General Long-Term Liabilities accounts will be the face value of $5,000,000 plus the amount of issuance costs, minus the cash received by the government.

So, the liability reported in the General Long-Term Liabilities accounts will be:

$5,000,000 (face value) + $55,000 (issuance costs) - $4,900,000 (cash received) = $155,000.

Therefore, the correct answer is B) $4,900,000.

If a Government Issues Bonds with a Face Value of $5,000,000