Pace Company issued bonds with a face value of $200,000 at 97.How does the issuance affect the company's accounting equation?
A)Assets and liabilities would both increase by $200,000.
B)Assets and liabilities would both increase by $194,000.
C)Assets would increase by $194,000 and liabilities would increase by $200,000.
D)Assets would increase by $200,000,and liabilities would increase by $194,000.

Question

Quizplus · Accepted Answer

Proceeds = Face value of $200,000 × 97% = $194,000
Issue price = $196,000 ÷ $200,000 = 98
Discount = Face value of $200,000 - Issue price of $196,000 = $6,000
Assets (cash)increase by $194,000.Liabilities (bonds payable)increase by $200,000 and liabilities (discount on bonds payable,a contra liability account)increase by $6,000 for a net increase in liabilities of $194,000.

Pace Company Issued Bonds with a Face Value of $200,000