Question

On October 1, 2020 Vaughn Manufacturing issued 4%, 10-year bonds with a face value of $8130000 at 103. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. The entry to record the issuance of the bonds would include a credit of $243900 to Premium on Bonds Payable. credit of $162600 to Interest Payable. credit of $7886100 to Bonds Payable. debit of $243900 to Discount on Bonds Payable.

Answer 1

Answer: a credit of $243,900 to Premium on Bonds Payable.

Step-by-step explanation:

The bonds were issued at a premium of 103 so the bond issue price is:

= 8,130,000 * 103/100

= $8,373,900

The premium is therefore:

= Issue price - Face value

= 8,373,900 - 8,130,000

= $243,900

This premium will be credited to the Premium on Bonds Payable account to show that the Bonds were issued for higher than their face value.