Purchased $400,000 of ABC Co. 5% bonds at 100 plus accrued interest of $4,500. Sold $250,000 of bonds at 97 plus accrued interest. The journal entry for the sale would include:

Question

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The correct answer is A because the sale of the bonds resulted in a loss of $7,500, which is the difference between the carrying value of the bonds ($250,000) and the sale price ($242,500). The journal entry to record the sale would include a debit to Cash for $242,500, a credit to Bonds Payable for $250,000, a debit to Loss on Sale for $7,500, and a credit to Interest Receivable for the accrued interest.