A 10%, 5-year, $100,000 bond that sells when the market rate of interest is 12% will sell at a discount

Accounting Mar 19, 2021

A 10%, 5-year, $100,000 bond that sells when the market rate of interest is 12% will sell at

1. a discount.
2. par.
3. face value.
4. a premium.

Expert Solution

Answer:

a .

Step-by-Step explanation

Option A is the correct answer.

The bond shall sell at discount

As the market rate of interest is 12 % , and the rate of interest at which the bonds are issued is 10% , which is less than the market rate of interest .Therefore the bonds shall sell at discount.

Journal entry on sale of bonds :

Cash  A/c  Dr.    $ 100,000
Discount on bonds payable A.c  Dr.  $ 12,000
                    To Bonds Payable       $112,000

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