Question

Archer Inc. issued $4,000,000 par value, 7% convertible bonds at 99 for cash. If the bonds had not included the conversion feature, they would have sold for 95. Prepare the journal entry to record the issuance of the bonds.

Short answer

Cash account will be debited with $3,960,000; Discount on Bond Payable will be debited with $40,000, and Bonds Payable will be credited with $4,000,000.

Step-by-step solution

The information provided in the question

We have:

Issued $4,000,000 par value

Rate of bond 7%

Convertible bonds at $99 for cash

Selling price $95

Journal Entry

Date	Description	DEBIT	CREDIT
	Cash	$3,960,000
	Discount on Bonds Payable	$40,000
	Bonds Payable		$4,000,000
	Being issuance of bond