Bonds with a face amount $1,000,000 are sold at 106. The journal entry to record the issuance is
A) Cash 1,000,000
Premium on Bonds Payable Bonds Payable
60,000
1,060,000
B) Cash Premium on Bonds Payable
1,060,000
60,000
Bonds Payable
1,000,000
C) Cash Discount on Bonds Payable
1,060,000
60,000
Bonds Payable
1,000,000
D) Cash Bonds Payable
1,060,000
1,060,000

Question

Quizplus · Accepted Answer

The journal entry to record the issuance of bonds would involve recording the cash received from issuing the bonds, as well as the liability created by the bonds payable. Because the bonds were sold at a premium (i.e., for more than their face value), the premium on bonds payable account would also be credited. Therefore, Choice B is the correct journal entry. Choice A incorrectly debits the premium on bonds payable account, while Choice C incorrectly credits the discount on bonds payable account. Choice D does not record any premium received from the sale of the bonds.

Bonds with a Face Amount $1,000,000 Are Sold at 106