Assume that on 1 January 2016 the company issued $100 000 10-year bonds with a 10 per cent coupon rate paid semi-annually.The bond is issued to yield a 12 per cent return to investors selling for $88 529.
-Which of the following would be part of the journal entry on 1 January 2016?

Question

Quizplus · Accepted Answer

The bond is issued to yield a 12% return to investors, which is greater than the coupon rate of 10%. This means that the bond is issued at a discount, as investors are willing to pay less than the face value of the bond in order to achieve the desired yield. The difference between the face value and the selling price of the bond is known as the discount on bonds. Therefore, the journal entry would include a debit to Discount on bonds for $11,471.

Assume That on 1 January 2016 the Company Issued $100