Final answer:
The correct journal entry for the issuance of $6,300,000, 10-year, 6% bonds at 101 would be a debit to Cash for $6,363,000 and credits to Bonds Payable for $6,300,000 and Premium on Bonds Payable for $63,000. The correct answer is b.cash 6363000 bonds payable 6300000 premium on bonds payable 63000.
Step-by-step explanation:
The student is asking how to record the issuance of bonds in a journal entry on January 1, 2021, when $6,300,000, 10-year, 6% bonds are issued at 101. The 101 means that the bonds were issued for 101% of their face value. As a result, Vaughn Corporation received more money than the face value of the bonds.
The correct journal entry to record this transaction would include debiting Cash for the amount they received and crediting Bonds Payable for the face value of the bonds. The difference between the cash received and the bonds payable is credited to a separate account called Premium on Bonds Payable.
Here is the correct journal entry for this transaction:
- Debit Cash $6,363,000
- Credit Bonds Payable $6,300,000
- Credit Premium on Bonds Payable $63,000
This entry reflects that the company received cash for more than the face value of the bonds, resulting in a premium.