Question

On June 30, 20X5, Huff Corp. issued at 99, 1000 of its 8%, $1,000 bonds. The bonds were issued through an underwriter to whom Huff paid bond issue costs of $35,000. On June 30, 20X5, Huff should report the bond liability at

Answer 1

Answer:

$1,000,000

Explanation:

The Bond Issued less than its face value is issued on the discount. This discount is recorded and amortized until the maturity of bond.

Discount on the Bond = Face value - Issuance value = ($1,000 x 1,000) - ($1,000 x 1,000) x 99% = $1,000,000 - $990,000 = $10,000

Journal Entry

Dr.  Cash                        $990,000

Dr.  Discount on Bond  $10,000

Cr. Bond Payable          $1,000,000

Bond Liability on June 30, 20x5 is $1,000,000.

Answer 2

Answer:

$955,000

Explanation:

We have to first calculate the net issuance value = 1,000 bonds x $1,000 x .99 = $990,000. This way we record the discount price.

Then we must subtract the costs related to the issuance of the bonds = $990,000 - $35,000 = $955,000.

The $35,000 must be treated as expenses, they are not part of the bonds' value.