On January 1,Parson Freight Company issues 7%,10-year bonds with a par value of $2,000,000.The bonds pay interest semiannually.The market rate of interest is 8% and the bond selling price was $1,864,097.The bond issuance should be recorded as:

A) Debit Cash $2,000,000; credit Bonds Payable $2,000,000.
B) Debit Cash $1,864,097; credit Bonds Payable $1,864,097.
C) Debit Cash $2,000,000; credit Bonds Payable $1,864,097; credit Discount on Bonds Payable $135,903.
D) Debit Cash $1,864,097; debit Discount on Bonds Payable $135,903; credit Bonds Payable $2,000,000.
E) Debit Cash $1,864,097; debit Interest Expense $135,903; credit Bonds Payable $2,000,000.

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megan ballo · Accepted Answer

Final Answer : D, Explanation :  The correct answer is D because the bonds were issued at a discount (selling price of $1,864,097 is less than the par value of $2,000,000). The entry records the cash received, the discount on bonds payable (which is the difference between the par value and the cash received), and the bonds payable at par value.

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