Question

On January 1, 2020, Meeks Corporation issued $5,000,000, 10-year, 4% bonds at 102. Interest is payable annually on January 1. The journal entry to record this transaction on January 1, 2020 is

a. Cash........................................................................................ 5,000,000
Bonds Payable............................................................... 5,000,000

b. Cash........................................................................................ 5,100,000
Bonds Payable............................................................... 5,100,000

c. Premium on Bonds Payable ................................................... 100,000
Cash........................................................................................ 5,000,000
Bonds Payable............................................................... 5,100,000

d. Cash........................................................................................ 5,100,000
Bonds Payable............................................................... 5,000,000
Premium on Bonds Payable .......................................... 100,000

Answer 1

d. Cash........................................................................................ 5,100,000

Bonds Payable............................................................... 5,000,000

Premium on Bonds Payable .......................................... 100,000

Explanation:

The Journal entry is shown below:-

Cash Dr, $5,100,000 ($5,000,000 × 1.02)

To Bonds payable $5,000,000

To Premium on Bonds payable $100,000

(Being cash is recorded)

Here we debited the cash as it increases the assets and we credited the bonds payable and premium on bonds payable as it also increases the liabilities.