On January 1, Multichip Corporation issued $2,000,000, 10-year, 8% bonds at 102. The journal entry to record this transaction would include a:
A) credit to bonds payable $2,040,000.
B) debit to discount on bonds payable $40,000.
C) debit to cash $2,000,000.
D) credit to premium on bonds payable $40,000.

Question

Quizplus · Accepted Answer

The bonds were issued at 102, which means they were sold at 102% of their face value. The premium on bonds payable is the excess amount over the face value, which is $40,000 (2% of $2,000,000).

On January 1, Multichip Corporation Issued $2,000,000, 10-Year, 8% Bonds