Johansen Company issued a bond at a discount. Which of the following shows how the issuance of the bonds affects the financial statements?

Question

Quizplus · Accepted Answer

When a bond is issued at a discount, the amount of cash received from the issuance is less than the face value of the bond. This results in a decrease in both the company's assets (cash) and liabilities (bonds payable). Option B correctly shows the decrease in cash and the increase in bonds payable on the balance sheet, as well as the decrease in interest expense on the income statement due to the lower interest payments required on the discount bond. Option A only shows the decrease in cash, but does not reflect the corresponding increase in bonds payable. Option C shows an increase in cash, which is not accurate for a bond issued at a discount, and Option D only shows the decrease in interest expense without reflecting the decrease in cash or increase in bonds payable.

Johansen Company Issued a Bond at a Discount