Bluestone Company issued bonds with a face value of $500,000 on January 1, Year 1 at 90. How would this event affect the company's financial statements?
A) Increase assets (cash) by $450,000, decrease liabilities (discounts on bonds payable) by $50,000, and increase liabilities by $500,000.
B) Increase assets (cash) by $500,000, decrease liabilities (discounts on bonds payable) by $50,000, and increase liabilities by $550,000.
C) Increase assets (cash) by $450,000, decrease liabilities (premium on bonds payable) by $50,000, and increase liabilities by $500,000.
D) Increase assets (cash) by $500,000 and increase liabilities by $500,000.

Question

Quizplus · Accepted Answer

Issuing bonds at 90 means they were issued at 90% of their face value, so the cash received is $500,000 * 90% = $450,000. The discount on bonds payable (difference between face value and cash received) is $50,000, and the total liabilities increase by the face value of the bonds, which is $500,000.

Bluestone Company Issued Bonds with a Face Value of $500,000