Bonds with a face amount $1,000,000, are sold at 108. The entry to record the issuance is
A) Cash 1,000,000 Premium on Bonds Payable 80,000
Bonds Payable 1,080,000
B) Cash 1,080,000 Premium on Bonds Payable 80,000
Bonds Payable 1,000,000
C) Cash 1,080,000 Discount on Bonds Payable 80,000
Bonds Payable 1,000,000
D) Cash 1,080,000 Bonds Payable 1,080,000

Question

Quizplus · Accepted Answer

The face amount of the bond is $1,000,000, but it was sold at a premium (108% of face value), which means the company received $1,080,000 (1,000,000 x 1.08). The entry to record this issuance is to debit Cash for $1,080,000 and credit Bonds Payable for $1,000,000, and credit Premium on Bonds Payable for $80,000 (the difference between the cash received and the face value of the bonds). Therefore, Choice B is the correct entry to record the issuance.

Bonds with a Face Amount $1,000,000, Are Sold at 108