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Issuing Bonds at a Premium On the first day of the fiscal year, a company issues...

Issuing Bonds at a Premium On the first day of the fiscal year, a company issues a $1,000,000, 8%, 4-year bond that pays semiannual interest of $40,000 ($1,000,000 × 8% × ½), receiving cash of $1,107,553. Journalize the bond issuance. If an amount box does not require an entry, leave it blank.

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Answer #1

When a Bond is issued at a Premium, it means that the bond is issued for more than its Face value. In other words when cash received against bond issue is more than face value of bond its called bond issue at premium.

Generally bonds are issued at premium because the interest payable on bond is more than market rate of return.

Journal entry at the time of Bond issue would be as follows

General Journal

Debit

Credit

Cash

$ 1,107,553.00

             Bonds Payable

$ 1,000,000.00

             Premium on issued of Bond

$      107,553.00

(bonds Issued at premium)
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