On January 1, a Company Issues Bonds Dated January 1

question 130

Multiple Choice

On January 1, a company issues bonds dated January 1 with a par value of $400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793.
- The journal entry to record the issuance of the bond is:

• A) Debit Bonds Payable $400,000; debit Bond Interest Expense $16,207; credit Cash $416,207.
• B) Debit Cash $383,793; debit Premium on Bonds Payable $16,207; credit Bonds Payable $400,000.
• C) Debit Cash $383,793; credit Bonds Payable $383,793.
• D) Debit Cash $383,793; debit Discount on Bonds Payable $16,207; credit Bonds Payable $400,000.
• E) Debit Cash $400,000; credit Discount on Bonds Payable $16,207; credit Bonds Payable $416,207.

---

Definitions:

Maximum Purchase Price

The highest price a buyer is willing to pay for an asset or property.

Pre-Merger Value

The valuation of a company or asset prior to undergoing a merger or acquisition.

Acquiring Firm

A company that purchases another company in a merger or acquisition to expand its operations or enter new markets.

Bankruptcy Judge

A judicial officer who presides over court proceedings in bankruptcy cases, making decisions on matters within the bankruptcy law.