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Riot Company issued $500000, 15-year, 7% bonds at .96. ( I DO NOT NEED THE ANSWER, JUST THE EXPLANATION OF ONE NUMBER. Thank you) a)

Riot Company issued $500000, 15-year, 7% bonds at .96. ( I DO NOT NEED THE ANSWER, JUST THE EXPLANATION OF ONE NUMBER. Thank you)

a) Prepare the journal entry to record the sale of these bonds on January 1, 2014.

Correct Answer from the answer key:

Jan. 1 Cash ($500,000 .96) .......................................... 480,000

Discount on Bonds Payable)........................... 26,000

Bonds Payable....................................... 500,000

I understand the Cash number and the bonds payable. How do you determine the discount on Bonds Payable. I would have thought it would be $20000 rather than $26000 so that the credit equals the debit. If you could show me how to get the $26000 and a quick explanation on the why.

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