Final answer:
To record the sale of $271,000 face value bonds at a 102% premium, the journal entry includes debiting 'Cash' for the amount received, crediting 'Bonds Payable' for the face value, and crediting 'Premium on Bonds Payable' for the difference as the premium.
Step-by-step explanation:
The student's question pertains to the accounting treatment when Range Company issues bonds. The bonds are issued at a premium (102% of the face value), which means that the cash received is more than the face value of the bonds. For a $271,000 face value bond with a 9% interest rate, issued at 102%, the journal entry on June 1, 2014, would be to debit 'Cash' for the amount received, credit 'Bonds Payable' for the face value, and credit 'Premium on Bonds Payable' for the premium received.
- Debit Cash $276,420 ($271,000 * 102%)
- Credit Bonds Payable $271,000
- Credit Premium on Bonds Payable $5,420 ($276,420 - $271,000)
The premium account reflects the additional amount over the face value that the company has to pay back over the life of the bond. This premium is amortized, which reduces the amount of interest expense over the 20-year period.