Issuing Bonds at a Discount MAN: Now we're going to issue bonds at a discount, which means we receive less than $1,000 for each bond probably because our bonds are paying a low interest rate. So in this example, we're going to issue or sell $100,000 of 8% 10-year bonds at 98. 98 is the price. It means we sold the bonds at 98% of maturity value. To journalize the account, we have to debit cash since cash is increasing. The bonds have a maturity value of $100,000. And we multiply that by 98% or 0.98. That means cash increases by $98,000. Even though we only receive $90,000, we had to pay the full maturity value, which is $100,000 when the bonds mature. So we had to increase the liability account called bonds payable by $100,000. Now the transaction doesn't balance. The balancing amount will go into an account called discount on bonds payable. The dollar amount that balances the transaction is a debit of $2,000. Discount on bonds payable is a contra account to bonds payable. Later on, we will show you how this is a contra account to bonds payable and how it will appear on the balance sheet. Before we find out what happens to this new account called discount on bonds payable, let's do a homework demonstration of issuing bonds at a discount.