Hefley Corporation issued a 10%,$500,000,8-year bond at 105.The entry to record the issuance transaction is to:

Question

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The bond was issued at 105, which means the investors paid more than the face value of the bond. The premium on bonds payable is the difference between the face value and the amount paid by the investors. Therefore, the entry should be to debit Cash for the full amount received ($525,000), credit Bonds Payable for the face value of the bond ($500,000), and credit Premium on Bonds Payable for the difference ($25,000).

Hefley Corporation Issued a 10%,$500,000,8-Year Bond at 105