A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000. The difference between par value and issue price for this bond is recorded as a:
A) Credit to Interest Income.
B) Credit to Premium on Bonds Payable.
C) Credit to Discount on Bonds Payable.
D) Debit to Premium on Bonds Payable.
E) Debit to Discount on Bonds Payable.

Question

Quizplus · Accepted Answer

The difference between the par value of the bond and the issue price is recorded as either a premium or discount on bonds payable. Since the cash proceeds received were greater than the par value, this indicates that the bond was issued at a premium. Therefore, the difference would be recorded as a credit to Premium on Bonds Payable.

A Company Received Cash Proceeds of $206,948 on a Bond