The Gordon Corporation issued $70,000 of 6%, 5-year bonds on January 1, Year 1 at 98. The interest payments are due on December 31 each year. Gordon uses the straight-line method of amortization.Which of the following answers shows the effect of the bond issuance on the financial statements?

Question

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The issuance of the bonds will result in an increase in cash of $68,600 ($70,000 x 98%). The bonds payable liability account will increase by the face value of the bonds, $70,000. Over the life of the bonds, the company will record interest expense of $4,200 ($70,000 x 6% x 5 years), which will be recorded as a debit to interest expense and a credit to interest payable. The company will also record an annual amortization of the bond discount of $600 (($70,000 - $68,600) ÷ 5)), which will be recorded as a debit to interest expense and a credit to the bond discount account.

The Gordon Corporation Issued $70,000 of 6%, 5-Year Bonds on January