Final answer:
When ABC company issues 100 of its $1,000 bonds at a price of 110, the journal entry includes a debit to Cash for $110,000, a credit to Bonds Payable for $100,000, and a credit to Premium on Bonds Payable for $10,000, reflecting the sale of bonds at a premium.
Step-by-step explanation:
If ABC company issues 100 of its $1,000 bonds at a price of 110, the company is selling the bonds at a premium, because the bonds are being sold for more than their face value. In this transaction, the company will receive $110,000 (100 bonds x $1,000 face value x 110%), and the journal entry to record this bond issuance will show a debit to Cash for $110,000 and a credit to Bonds Payable for the face value of the bonds, which is $100,000. Additionally, there will be a credit to the premium on bonds payable account for the amount by which the bonds sold exceed their face value, which is $10,000 (the difference between $110,000 and $100,000).
The journal entries will look as follows:
- Debit Cash $110,000
- Credit Bonds Payable $100,000
- Credit Premium on Bonds Payable $10,000