question archive A corporation is authorized to issue 5,000,000 of 6% 10-years bonds dated July 1, 2019 with interest payments on December 31 and June 30
A corporation is authorized to issue 5,000,000 of 6% 10-years bonds dated July 1, 2019 with interest payments on December 31 and June 30
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A corporation is authorized to issue 5,000,000 of 6% 10-years bonds dated July 1, 2019 with interest payments on December 31 and June 30. When the bonds are issued on November 1, 2019, corporation receives cash of 5,150,000 including the accrued interest.
The journal entry to record the issuance of the bonds would include:
a. 150,000 bond discount
b. 150,000 bond premium
c. 50,000 bond discount
d. 50,000 bond premium
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Answer:
- d. 50,000 bond premium
Step-by-step explanation
Premium on bonds payable
- Premium on bonds payable (or bond premium) occurs when bonds payable are issued for an amount greater than their face or maturity amount. This is caused by the bonds having a stated interest rate that is higher than the market interest rate for similar bonds.
Cash received 5, 150,000
Accrued interest from June 30 to November 1, 2010
(5,000,000 x 6% x 4/12) (100,000)
Issue price 5,050,000
Face value (less) 5,000, 000
ie. (5,050,000 - 5,000,000)
Premium on bonds payable 50,000
