Question

The journal entry a company records for the issuance of bonds when the contract rate is less than the market rate would be_____________.

a. debit Cash, credit Bonds Payable.
b. debit Cash and Discount on Bonds Payable, credit Bonds Payable.
c. debit Bonds Payable, credit Cash.
d. debit Cash, credit Premium on Bonds Payable and Bonds Payable

Answer 1

Answer:

b. debit Cash and Discount on Bonds Payable, credit Bonds Payable.

Explanation:

Since the contract rate is less than the market rate, the bond is issued at a discount. And, the journal entry is shown below:

Cash A/c Dr XXXXX

Discount on bonds payable A/c XXXXX

     To Bonds payable A/c XXXXX

(Being bond is issued at a discount is recorded)

When the bond is issued at a discount, we debited the cash account and  the discount on bonds payable and credited the bonds payable account