4\nqs 14 - 7 (algo) journalizing discount bond issuance lo p2\nenviro company issues 10%, 10 - year bonds…

4\nqs 14 - 7 (algo) journalizing discount bond issuance lo p2\nenviro company issues 10%, 10 - year bonds with a par value of $250,000 and semiannual interest payments. on the issue date, the annual market rate for these bonds is 12%, which implies a selling price of 88 1/2.\nprepare the journal entry for the issuance of the bonds for cash on january 1.\nview transaction list\njournal entry worksheet\n1\nrecord the issue of bonds with a par value of $250,000.\nnote: enter debits before credits.\ndate general journal debit credit\njanuary 01

4\nqs 14 - 7 (algo) journalizing discount bond issuance lo p2\nenviro company issues 10%, 10 - year bonds with a par value of $250,000 and semiannual interest payments. on the issue date, the annual market rate for these bonds is 12%, which implies a selling price of 88 1/2.\nprepare the journal entry for the issuance of the bonds for cash on january 1.\nview transaction list\njournal entry worksheet\n1\nrecord the issue of bonds with a par value of $250,000.\nnote: enter debits before credits.\ndate general journal debit credit\njanuary 01

Answer

Explanation:

Step1: Calculate the issue price of the bonds

The selling - price is 88 1/2, which means 88.5% of the par value. The par value of the bonds is $250,000. So the issue price = $250,000×0.885 = $221,250.

Step2: Determine the discount on bonds payable

The discount on bonds payable is the difference between the par value and the issue price. Discount = $250,000 - $221,250=$28,750.

Step3: Record the journal entry

When bonds are issued at a discount, we debit Cash for the amount received, debit Discount on Bonds Payable for the discount amount, and credit Bonds Payable for the par value.

Answer:

Date General Journal Debit Credit
January 01 Cash $221,250
Discount on Bonds Payable $28,750
Bonds Payable $250,000