The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate would be
A) debit Bonds Payable, credit Cash
B) debit Cash and Discount on Bonds Payable, credit Bonds Payable
C) debit Cash, credit Premium on Bonds Payable and Bonds Payable
D) debit Cash, credit Bonds Payable

Question

Quizplus · Accepted Answer

When the contract rate is less than the market rate, the bonds are issued at a discount. The journal entry for the issuance of such bonds includes debiting Cash for the amount of cash received, and debiting Discount on Bonds Payable for the amount of discount (the difference between the face amount and the amount received). The credit entry would be to Bonds Payable for the face amount of the bonds issued. Therefore, the correct option is B.

The Journal Entry a Company Records for the Issuance of Bonds