Question

A company issued $1,000,000 in 12%, 5-year bonds on the first day of their fiscal year. The journal entry to record the issue included a credit to Premium on Bonds Payable in the amount of $77,200. How much cash did the company receive for the bond issue?

Answer 1

The company received $1,077,200 in total cash for the bond issue, which is the sum of the face value of the bonds ($1,000,000) and the premium on bonds payable ($77,200).

Step-by-step explanation:

The company issued $1,000,000 in 12%, 5-year bonds and recorded a credit to Premium on Bonds Payable in the amount of $77,200. This premium indicates that the company received more than the face value of the bonds.

To determine the total cash received, we add the face value of the bonds to the premium on bonds payable. Therefore, the company received $1,077,200 in cash for the bond issue ($1,000,000 face value + $77,200 premium).