Question

Crane Company issues $310,000, 20-year, 7% bonds at 102. Prepare the journal entry to record the sale of these bonds on June 1, 2022. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

June 1st 2022

Dr Cash 316,200

Cr Bond Payable 310,000

Cr Premium on Bond payable 6,200

( to record bond issuance)

Step-by-step explanation:

As at issuance, we have:

+ Cash receipt from bond issuance = 310,000 x 102% = $316,200. So, Cash account goes up (Dr) by $316,200 to reflect the change.

+ Bond payable record at the par-value of total bonds issued or $310,000. So, Bond Payable goes up (Cr) by $310,000 to record the bond liability.

+ As bond is issued at premium ( at 102); a Premium on Bond account is credited at the amount of $6,200; which is decided is the different between the amount debit to cash account and the amount credit to bond payable account ( 316,200 - 310,000).

Answer 2

The Journal entry is as follows:

On June 1, 2022

Cash A/c Dr. $316,200

To Bonds payable A/c $310,000

To Premium on Bonds Payable A/c $6,200

(To record the sale of these bonds on June 1, 2022)

Workings:

cash = $310,000 × (102 ÷ 100)

= $310,000 × 1.02

= $316,200

Premium on Bonds Payable = $316,200 - $310,000

= $6,200