Plum Corporation issues $400,000 of 7 percent,five-year bonds on January 1,20x5,when the market rate of interest is 8 percent.The bond indenture states that interest is to be paid on January 1 and July 1 of each year.The entry to record the issuance includes

Question

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The bonds are issued at a discount because the market rate (8%) is higher than the coupon rate (7%). Therefore, the entry to record the issuance includes a debit to Unamortized Bond Discount to account for the difference between the face value and the cash received.

Plum Corporation Issues $400,000 of 7 Percent,five-Year Bonds on January