Question

Bonds with a face amount $1,000,000, are sold at 109. The entry to record the issuance is

Group of answer choices

Debit: Cash 1,000,000 Debit: Premium on Bonds Payable 90,000 Credit: Bonds Payable 1,090,000

Debit Cash 1,090,000 Credit: Bonds Payable 1,090,000

Debit: Cash 1,060,000 Credit: Premium on Bonds Payable 60,000 Credit: Bonds Payable 1,000,000

Debit: Cash 1,090,000 Credit: Premium on Bonds Payable 90,000 Credit: Bonds Payable 1,000,000

Answer 1

Answer: Correct option is d. Debit: Cash 1,090,000 Credit: Premium on Bonds Payable 90,000 Credit: Bonds Payable 1,000,000

Debit the cash account as cash inflow in business.

Cash from bond issue = Number of shares * issue price

= 10,000 * $ 109

= $ 1,090,000

Number of shares = $ 1,000,000 / $ 100

= 10,000

Credit the Bond payable (always recorded at face value) i.e $ 1,000,000

Credit the Premium on bonds payable is the difference of cash from bond issue and bonnd payable (face value).

Premium on Bonds payable = $ 1,090,000 - $ 1,000,000

= $ 90,000