Oriole Inc. issues $360,000, 10-year, 9% bonds at 96. Prepare the journal entry to record the sale of these bonds on March 1, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

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21 February, 00:21

Oriole Inc. issues $360,000, 10-year, 9% bonds at 96. Prepare the journal entry to record the sale of these bonds on March 1, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

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Lilyana Andersen · Answer 1

March 1 2020 Cash $345600 Dr

Discount on Bonds Payable $14400 Dr

Bonds Payable $360000 Cr

Explanation:

The bonds are always denominated or stated in terms of 100. 100 here means that the bonds are issued at their par or face value. Any difference from this number means that the bonds are either issued at a premium or a discount depending on whether the number is greater or less than 100 repectively.

The bonds here are issued at 96 which means they are issued at a discount and the cash received for such bonds is only 96% of the face value. The difference between the cash received and the face value is the amount of discount which wll be amortized over the 10 years life of bonds.

The cash received is 0.96 * 360000 = 345600

The discount is 360000 - 345600 = 14400