Question

On January 1, 2019, ABC Corporation issued $2,300,000, 10-year, 9% bonds at 103. The journal entry to record this transaction would include a:

Select one:

a. debit to Discount on Bonds Payable $69,000.

b. credit to Premium on Bonds Payable $69,000.

c. debit to Cash $2,300,000.

d. credit to Bonds Payable $2,369,000.

Answer 1

Journal

Date	Account title	Debit	Credit
January 1, 2019	Cash	2,369,000
	Bonds payable		2,300,000
	Premium on bonds payable		69,000
	(To record issue of bonds at premium)

Par value of bonds = $2,300,000

Issue price = 103

Cash receipts from issue of bonds = 2,300,000 x 103%

= $2,369,000

Premium on bonds payable = Cash receipts from issue of bonds - Par value of bonds

= 2,369,000 - 2,300,000

= $69,000

The journal entry to record this transaction would include a credit to Premium on Bonds Payable $69,000.

Correct option is (b)