Question

On January 1, 2018, Bentley Corporation issued $1,000,000 of 10-year, 8% bonds at 105, when the market rate of interest was 7%. The bonds pay interest annually on December 31. How much cash did Bentley Corporation receive when the bonds were issued?

Answer 1

i think 50%

Step-by-step explanation:

Answer 2

Cash received on bond issuance = $1,050,000

Step-by-step explanation:

Amount of cash receivable on the bond issued =$1,000,000×105%

= $1,050,000

Accounting entries :

Cash Account (DR) $1,050,000, Bonds Payable (CR) $1,000,000 & Premium on Bonds payable (CR) $50,000.

When bond is issued at a premium, it is being sold more than it is worth.

Bond Payable is always recorded at the amount we have to pay back which is the face value or principal amount of the bond. The difference between the price we sell it and the amount we have to pay back is recorded in a liability account called Premium on Bonds Payable.

The premium on bond will be amortized over the life of the bond and will be used to reduce bond interest expense payable each year.