Fenway Corporation issued a $20,000,10-year,10% bond dated January 1,at 102.The journal entry to record the issuance of the bond will include a:
A)debit to Cash for $20,000.
B)debit to Cash for $20,400.
C)credit to Bonds Payable for $20,400.
D)debit to Discount on Bonds Payable for $400.

Question

Quizplus · Accepted Answer

The journal entry to record the issuance of the bond will include a debit to Cash for $20,400 (20,000 x 102%) and a credit to Bonds Payable for $20,000. The difference between the proceeds received and the face value of the bond is the bond premium, which in this case is $400. Therefore, there is no debit to Discount on Bonds Payable.

Fenway Corporation Issued a $20,000,10-Year,10% Bond Dated January 1,at 102