Issuing Bonds at a Discount

Issuing Bonds at a Discount - Issuing Bonds at a Discount...

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Issuing Bonds at a Discount To illustrate the issuance of bonds at a discount, assume that on January 1, 2010, Candlestick Inc. sells $100,000, five-year, 10% bonds at 98 (98% of face value) with interest payable on January 1. The entry to record the issuance is: Discount on Bonds Payable Bonds Payable (To record sale of bonds at a discount) Although Discount on Bonds Payable has a debit balance, it is not an asset . Rather it is a contra account , which is deducted from bonds payable on the balance sheet as shown in Illustration 10-7 . 10-7 Statement presentation of discount on bonds payable
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Helpful Hint The carrying value (book value) of bonds issued at a discount is determined by subtracting the balance of the discount account from the balance of the Bonds Payable account. The $98,000 represents the carrying (or book) value of the bonds. On the date of issue this amount equals the market price of the bonds. The issuance of bonds below face value causes the total cost of borrowing to differ from the
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This note was uploaded on 11/08/2011 for the course ACCOUNTING ac 201 taught by Professor - during the Spring '11 term at Montgomery.

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Issuing Bonds at a Discount - Issuing Bonds at a Discount...

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