On January 1, Year 1, Burton Corporation recorded an event that increased its cash account by $196,000, increased its discount on bonds payable account by $4,000, and increased its bonds payable account by $200,000. Which of the following correctly describes that event?
A) Burton issued bonds at 102.
B) Burton issued bonds at 98.
C) Burton issued bonds at a $4,000 premium.
D) Burton signed a note payable for $196,000.

Question

Quizplus · Accepted Answer

Burton Corporation issued bonds at 98, which means the bonds were issued at 98% of their face value. The increase in cash ($196,000) is less than the increase in bonds payable ($200,000), indicating the bonds were sold at a discount (not at a premium or at par value). The discount on bonds payable account increased by $4,000, which represents the difference between the face value of the bonds and the cash received, confirming the bonds were issued at a discount.

On January 1, Year 1, Burton Corporation Recorded an Event