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On January 1, Parson Freight Company issues 7.5%, 10-year bonds with a par value of $2,600,000. The bonds pay interest semiannually. The market rate of interest is 8.5% and the bond selling price was $2,423,327. The bond issuance should be recorded as:

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Answer:

  • Cash : $2,423,327
  • Discount on Issue of bond: $176,673
  • Bond payable $2,600,000

Explanation:

Given:

  • Par value $2,600,000
  • Selling price: $2,423,327.

From the information, we can see that the bond market value is smaller than its par value. Hence, the bond is issued at a discount.

The discount amount :

Par value - Selling price

=  $2,600,000 - $2,423,327

= $176,673

So the Journal entry for Bond issuance:

  • Cash : $2,423,327
  • Discount on Issue of bond: $176,673
  • Bond payable $2,600,000

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