Your Company Issues $500,000 in Bonds at an Issue Price

question 110

Multiple Choice

Your company issues $500,000 in bonds at an issue price of 98. The company will record:

• A) a debit of $490,000 to cash, a debit of $10,000 to a contra-liability account to reflect the discount, and a credit of $500,000 to bonds payable.
• B) a debit of $490,000 to cash, a debit of $10,000 to a contra-asset account to reflect the discount, and a credit of $500,000 to bonds payable.
• C) a debit of $500,000 to bonds payable, a credit of $10,000 to a contra-liability account to reflect the discount, and a credit to cash of $490,000.
• D) a debit of $490,000 to bonds payable, a debit of $10,000 to a contra-asset account to reflect the discount, and

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Definitions:

Joint Venture

A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task or business activity.

Fair Value

A valuation method that approximates the amount for which an asset could be bought or sold in a current transaction between participants at arm's length.

Book Value

The net value of an asset or liability according to its balance sheet account balance, taking into account the cost of the asset and accumulated depreciation.

Unrealized Gain

A profit that exists on paper resulting from an investment that has increased in value but has not yet been sold.