Sayan,Inc.sold $200,000 of bonds for an issue price of 97.As a result of selling these bonds,its total assets increase by:
A)$194,000 and its total liabilities increase by $194,000.
B)$200,000 and its total liabilities increase by $200,000.
C)$194,000 and its total liabilities increase by $200,000.
D)$200,000 and its total liabilities increase by $194,000.

Question

Quizplus · Accepted Answer

Cash,an asset,increases by $194,000 (or $200,000 × 0.97).Bonds Payable,a liability,increases by the par value of the bonds of $200,000.Since the issue price is less than the face value,there is a discount of $6,000 (or par value of $200,000 − issue price of $194,000),which increases Discounts on Bonds Payable,a contra-liability account.Overall,liabilities increase by $194,000 (or $200,000 − $6,000).

Sayan,IncSold $200,000 of Bonds for an Issue Price of 97