On January 1, Parson Freight Company issues 7.5%, 10-year bonds with a par value of $2,600,000. The bonds pay interest semiannually. The market rate of interest is 8.5% and the bond selling price was $2,423,327. The bond issuance should be recorded as:

Question

Business

Valentin Reynolds

31 December, 15:30

On January 1, Parson Freight Company issues 7.5%, 10-year bonds with a par value of $2,600,000. The bonds pay interest semiannually. The market rate of interest is 8.5% and the bond selling price was $2,423,327. The bond issuance should be recorded as:

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Answers (1)

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Aidan Hurley · Answer 1

Cash : $2,423,327 Discount on Issue of bond: $176,673 Bond payable $2,600,000

Explanation:

Given:

Par value $2,600,000 Selling price: $2,423,327.

From the information, we can see that the bond market value is smaller than its par value. Hence, the bond is issued at a discount.

The discount amount:

Par value - Selling price

= $2,600,000 - $2,423,327

= $176,673

So the Journal entry for Bond issuance:

Cash : $2,423,327 Discount on Issue of bond: $176,673 Bond payable $2,600,000

Hope it will find you well