On January 1, a Company Issues Bonds Dated January 1

question 64

Multiple Choice

On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $312,177. The journal entry to record the issuance of the bond is:

• A) Debit Cash $312,177; credit Discount on Bonds Payable $12,177; credit Bonds Payable $300,000.
• B) Debit Cash $300,000; debit Premium on Bonds Payable $12,177; credit Bonds Payable $312,177.
• C) Debit Bonds Payable $300,000; debit Interest Expense $12,177; credit Cash $312,177.
• D) Debit Cash $312,177; credit Premium on Bonds Payable $12,177; credit Bonds Payable $300,000.
• E) Debit Cash $312,177; credit Bonds Payable $312,177.

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Definitions:

Accounting Principles

Fundamental guidelines or rules that govern the financial reporting and accounting practices of companies, ensuring accuracy, consistency, and fairness in financial statements.

Prospectively

Prospectively means looking forward or considering future events, often used in accounting in terms of adopting new policies for future transactions.

LIFO Reserve

The difference between the cost of inventory calculated under the Last In, First Out (LIFO) method and another inventory costing method like First In, First Out (FIFO).

Deferred Taxes

Taxes that are owed but not yet paid, arising from temporary differences between accounting and tax treatments of income and expenses.