Hayden Corporation issues 1,000, 10-year, 8%, $2,000 bonds dated January 1 at 92. The journal entry to record the issuance will show a
A) credit to Discount on Bonds Payable for $160,000
B) debit to Cash for $2,000,000
C) credit to Bonds Payable for $2,000,000
D) credit to Cash for $1,840,000

Question

Quizplus · Accepted Answer

When bonds are issued at a discount, the entries will show a credit to Bonds Payable for the face value of the bonds and a debit to Cash for the amount received from the bondholders (in this case, $2,000,000 x 0.92 = $1,840,000). The discount is calculated as the difference between the face value of the bonds and the amount received from the bondholders, which in this case is $160,000 (i.e. $2,000,000 - $1,840,000). However, the entry does not include a credit to Discount on Bonds Payable until the end of the accounting period, when the discount is amortized over the life of the bonds.

Hayden Corporation Issues 1,000, 10-Year, 8%, $2,000 Bonds Dated January