On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $312,177. The journal entry to record the issuance of the bond is:
A) Debit Cash $312,177; credit Discount on Bonds Payable $12,177; credit Bonds Payable $300,000.
B) Debit Cash $300,000; debit Premium on Bonds Payable $12,177; credit Bonds Payable $312,177.
C) Debit Bonds Payable $300,000; debit Interest Expense $12,177; credit Cash $312,177.
D) Debit Cash $312,177; credit Premium on Bonds Payable $12,177; credit Bonds Payable $300,000.
E) Debit Cash $312,177; credit Bonds Payable $312,177.

Question

Quizplus · Accepted Answer

The bonds were sold for more than their par value, indicating a premium on bonds payable. The correct journal entry debits Cash for the amount received ($312,177), credits Bonds Payable for the par value ($300,000), and credits Premium on Bonds Payable for the difference ($12,177).

On January 1, a Company Issues Bonds Dated January 1