Cane Corporation issued $800,000, 12% bonds at 97. The entry to record this transaction is:

Question

Quizplus · Accepted Answer

When bonds are issued at a discount (below their face value), the cash received is less than the bond's face value. The difference is recorded as a "Discount on Bonds Payable," which is a contra liability account. In this case, the bonds were issued at 97% of their face value, so the cash received is 97% of $800,000, which equals $776,000. The discount on the bonds payable is the difference between the face value ($800,000) and the cash received ($776,000), which is $24,000. Therefore, the correct entry is to debit Cash for $776,000, debit Discount on Bonds Payable for $24,000, and credit Bonds Payable for the full face value of $800,000.

Cane Corporation Issued $800,000, 12% Bonds at 97