Zahller Company issued 5000 bonds with a face value of $1000 each at 102 on November 1.The bonds were dated November 1.Use the following tabular analysis to record the issuance:

Question

Quizplus · Accepted Answer

The issuance of bonds at a premium means that the company is receiving more cash than the face value of the bonds. In this case, the bonds were issued at 102, which means that the company received $1020 for each $1000 bond. The total amount of cash received will be the face value of the bonds multiplied by the selling price per bond, which is 5000 x $1020 = $5,100,000.

Since the bonds were issued at a premium, the company will record a liability for the face value of the bonds, and a separate account called "Premium on Bonds Payable" for the excess cash received. The amount of premium can be calculated by subtracting the face value of the bonds from the total cash received: $5,100,000 - ($1000 x 5000) = $100,000.

Therefore, the correct journal entry would be an increase to Cash for $5,100,000, an increase to Bonds Payable for $5,000,000, and an increase to Premium on Bonds Payable for $100,000. This matches option C.

Zahller Company Issued 5000 Bonds with a Face Value of $1000