Enviro company issues 10%, 10-year bonds with a par value of $330,000 and semiannual interest payments. on the issue date, the annual market rate for these bonds is 12%, which implies a selling price of 88 1/2.

Question

Deborah Doyle

Business

25 June, 10:46

Enviro company issues 10%, 10-year bonds with a par value of $330,000 and semiannual interest payments. on the issue date, the annual market rate for these bonds is 12%, which implies a selling price of 88 1/2.

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Beatrice Clay · Answer 1

Cash 292,050 debit

Discount on BP 37,950 debit

Bonds Payable 330,000 credit

Explanation:

we have to multiply the face value y the quoted value

330,000 x 88 1/2 = 292,050

The difference between the face value and the cash proceeds will be considered premium or discount. In this case; as the proceeds are lower than face value is a discount.

discount on bonds payable: 330,000 - 292,050 = 37,950