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 Bond 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 are issued at a premium because the market rate is lower than the contract rate. The cash received is $312,177, which is more than the par value of $300,000, resulting in a premium of $12,177. Therefore, the correct entry is to debit Cash for $312,177, credit Bonds Payable for $300,000, and credit Premium on Bonds Payable for $12,177.

On January 1,a Company Issues Bonds Dated January 1 with a Par