Question

The journal entry to record the sale of bonds at their par value results in which of the following?

A. An increase in assets and liabilities equal to the par value of the bonds.

B. An increase in assets and liabilities equal to the par value of the bonds and their associated interest payments.

C. An increase in assets equal to the par value of the bonds and an increase in liabilities equal to the bonds' future cash flows.

D. An increase in assets and liabilities equal to the bonds' future cash flows.

Answer 1

Ans - An increase in assets and liabilities equal to the par value of the bonds (OPTION A)

When bonds are sold at Par value, then proceeds received from sale increases the assets (Cash balance) equivalent to par value of bonds sold and also equivalent to par value, a bond payable liability will also be created. Thus sale of bond will increase both assets and liabilities equivalent to par value of bonds sold.

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