[dab88]

On June 30, Huff Corp. issued at 99, 1,000 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, Huff should report the bond liability at:

Correct A.
$955,000.

B.
$990,000.

C.
$1,000,000.

D.
$1,025,000.

answer is B

The carrying value of the debt, initially, the bond liability, is $990,000, computed as the number of bonds multiplied by the face amount per bond, multiplied by the issue percentage, reduced by the bond issue costs of $35,000:
•1,000 bonds × $1,000 face × 0.99 = $990,000
•$990,000 − $35,000 = $955,000

Can someone explain the debits and credits behind this answer because I thought the debits and credits would be

debit cash 955000
debit discount 10000
debit BIC 35000
Credit Liability 1,000,0000

According to the answer this is wrong

[Radez]

My guess is that when it's asking about the bond liability, it's not asking about the balance in the bond payable account. It's asking for the bond liability, which would be net of discounts and issue costs. Both bond discounts and BIC are contra-liability accounts for bonds, so bond liability would, in theory, be at net. Your journal entry looks correct. I think the question was just asking for the net, not the gross.

I'm not a big fan of questions like these because while I agree that some terminology should be precise, I haven't seen enough discipline in the language of the question banks or in the literature to suggest we should be expected to parse these questions accurately without additional information.

[dab88]

Thank you

[dab88]

@RADEZ

Do you have an example with BIC for premium and Discounts that amortized the debits and credits?

[Author]

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