Question

On January 1, Gasperson Inc. issued $100,000,000, 7% bonds at 102. The journal entry to record the issuance of the bonds will include

a. a debit to Cash for $100,000,000.
b. a credit to Interest Expense for $2,000,000.
c. a credit to Bonds Payable for $102,000,000.
d. a credit to Premium on Bonds Payable for $2,000,000.

Answer 1

The issuance of Gasperson Inc.'s bonds would entail a debit to Cash for the sale price, a credit to Bonds Payable for the bond's face value, and a credit to Premium on Bonds Payable for the amount over face value.

Step-by-step explanation:

The journal entry to record the issuance of Gasperson Inc.'s $100,000,000, 7% bonds at 102 will include a debit to Cash for $102,000,000 (which is the face value of $100,000,000 multiplied by the 102% price), a credit to Bonds Payable for $100,000,000 (the face value of the bonds), and a credit to Premium on Bonds Payable for $2,000,000 (the difference between the cash received and the face value of the bonds).

Therefore, the correct answer is option d. a credit to Premium on Bonds Payable for $2,000,000. This represents the extra amount over the face value of the bonds, which the company will have received in cash upon issuance of the bonds.