Question

In: Accounting

Mobbe Company issued $500,000, 15-year, 7% bonds at 96. Instructions (a)   Prepare the journal entry to...

Mobbe Company issued $500,000, 15-year, 7% bonds at 96.

Instructions

(a)  

Prepare the journal entry to record the sale of these bonds on January 1, 2017.

(b)  

Suppose the remaining Discount on Bonds Payable was $12,000 on December 31, 2022. Show the balance sheet presentation on this date.

(c)  

Explain why the bonds sold at a price below the face amount.

Solutions

Expert Solution

a)  

Prepare the journal entry to record the sale of these bonds on January 1, 2017.

Date

Description

debit $

Credit $

1-Jan

Cash (500,000*0.96)

480000

Discounts on bonds payable

20,000

Bonds payable

500,000

(to record the issue of bond)

_________________________________________

(b)  

Suppose the remaining Discount on Bonds Payable was $12,000 on December 31, 2022. Show the balance sheet presentation on this date.

Mobbe Company

Balance sheet (partial)

31-Dec-22

Long term liability

Bonds payable

500,000

less: Discounts on bonds payable

-12000

488,000

___________________________________________________

(c)  

Explain why the bonds sold at a price below the face amount.

Main reason behind the bonds are selling at the lower price than its face value because because the contractual interest rate is lower than the interest rate prevailing in the market


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