Question

On January 1, a company issues bonds dated January 1 with a par value of $250,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $260,148. The journal entry to record the issuance of the bond is: Multiple Choice Debit Cash $250,000; debit Premium on Bonds Payable $10,148; credit Bonds Payable $260,148. Debit Cash $260,148; credit Premium on Bonds Payable $10,148; credit Bonds Payable $250,000. Debit Bonds Payable $250,000; debit Bond Interest Expense $10,148; credit Cash $260,148. Debit Cash $260,148; credit Bonds Payable $260,148. Debit Cash $260,148; credit Discount on Bonds Payable $10,148; credit Bonds Payable $250,000.

Answer 1

Debit Cash $260,148; credit Premium on Bonds Payable $10,148; credit Bonds Payable $250,000

Step-by-step explanation:

The journal entry is shown below:

Cash $260,148

To Bond payable $250,000

To Premium on bonds payable $10,148

(Being the issuance of the bond is recorded)

While recording this we debited the cash as cash is received and credited the bond payable as it increased the liabilities and the difference is credited to the premium on bonds payable i.e $10,148