Question

On January 1, Franco Inc. issued $10,000,000, 9% bonds at 102. The journal entry to record the issuance of the bonds will include?

1) a credit to bonds payable for $10,200,000
2) a credit to Premium on Bonds Payable for $200,000
3) a debit to Cash for $10,000,000
4) a credit to Interest Expense for $200,000

Answer 1

The journal entry to record the issuance of the bonds will include a credit to Bonds Payable for the face value of the bonds, a credit to Premium on Bonds Payable for the difference between the face value and the issue price, and a debit to Cash for the amount of cash received from the issuance of the bonds.

Step-by-step explanation:

The journal entry to record the issuance of the bonds will include a credit to Bonds Payable for the face value of the bonds, which is $10,000,000. It will also include a credit to Premium on Bonds Payable for the difference between the face value and the issue price, which is $200,000 (computed as $10,200,000 - $10,000,000).

The entry will also include a debit to Cash for the amount of cash received from the issuance of the bonds, which is $10,000,000.

Lastly, there will be no entry to record any interest expense as the bond interest payment will be made in the future at the specified interest rate.