Paragon comma Inc. 's trial balance shows $ 255 comma 000 face value of bonds with a discount balance of $ 1 comma 200. The bonds mature in 10 years. How will the bonds be presented on the balance sheet? A. Bonds payable $ 255 comma 000 will be listed as a long-term liability. B. Bonds payable $ 255 comma 000 will be listed as a long-term liability. A $ 1 comma 200 discount on bonds payable will be listed as a contra current liability. C. Bonds payable $ 253 comma 800 (net of $ 1 comma 200 discount) will be listed as a long-term liability. D. Bonds payable $ 255 comma 000 will be listed as a long-term liability. A $ 1 comma 200 discount on bonds payable will be listed as a current liability.

Question

Business

Coby Dunlap

29 June, 13:57

Paragon comma Inc. 's trial balance shows $ 255 comma 000 face value of bonds with a discount balance of $ 1 comma 200. The bonds mature in 10 years. How will the bonds be presented on the balance sheet? A. Bonds payable $ 255 comma 000 will be listed as a long-term liability. B. Bonds payable $ 255 comma 000 will be listed as a long-term liability. A $ 1 comma 200 discount on bonds payable will be listed as a contra current liability. C. Bonds payable $ 253 comma 800 (net of $ 1 comma 200 discount) will be listed as a long-term liability. D. Bonds payable $ 255 comma 000 will be listed as a long-term liability. A $ 1 comma 200 discount on bonds payable will be listed as a current liability.

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Answers (1)

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Amiah Berg · Answer 1

The correct option is C, Bonds payable $ 253 comma 800 (net of $ 1 comma 200 discount) will be listed as a long-term liability.

Explanation:

Upon issuance of the bonds, bonds payable would be credited with $255,000, the face value of the bond while discounts on bonds payable is debited with $1,200, with cash proceeds of $253,800 ($255,000-$1200) debited to cash accounts.

The $1,200 debited is a contra liability, the same way accumulated depreciation is a contra asset going against the non-current asset account in the balance.

By being contra liability, it effectively reduces bonds payable balance to $253,800, as a result the bonds is shown as a long term liability in the balance sheet