Question

A company issues bonds with a $100,000 par value, an 8% annual contract rate, semiannual interest payments, and a five year life. The bonds sold for $107,850. The entry to record the issuance of the bonds will include

Answer 1

Answer:

a. A credit to Premium on Bond Payable $7,850

Multiple-choices

a. A credit to Premium on Bonds Payable of $7,850.

b. A debit to Discount on Bonds Payable of $7,850

c. A credit to Cash of $100.000.

d. A credit to Bonds Payable of $107850

Explanation:

Bonds issued at a premium mean a customer pays a higher price than the face value.  In this case, the premium amount is the difference between $107,850 and $100,000.  When bonds are issued at a premium,  the premium amount is debited to a premium bond account.