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Coffman Company sold bonds with a face value of $1,000,000 for $940,000. The bonds have a coupon rate of 10 percent, mature in 10 years, and pay interest semiannually every June 30 and December 31. All of the bonds were sold on January 1 of this year. Using a discount account, record the sale of the bonds on January 1 and the payment

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hyderali230

Answer:

Journal Entry

January 1

Dr. Cash                                                 $940,000

Dr. Discount on Account Receivable  $60,000

Cr. Bond Payable Account                   $1,000,000

Explanation:

The difference between the face value of the bond and the sale value of the bond is known as premium or the discount on the bond. If the face value is higher from the sale value the bond is issued on the discount and if the sale value of the bond is higher than the face value the bond is issued on the premium.

Discount on the Bond =  Face value - Sale value = $100,000 - $940,000 = $60,000

The discount amount will be recorded in Discount on Bond Payable Account and will be amortized over the 10 years until the maturity of the bond.

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