Question

On January 1, 2020, Green Bay Enterprises issued 10%, 10-year bonds with a face amount of $2,000,000 at 108. Interest is payable annually on January 1. The entry when the bond was issued would include a

Answer 1

Answer:

1.credit to premium on bonds payable for $160,000

Explanation:

The journal entry to record the issuance of the bond is given below:

Cash     $2,160,000  ($2,000,000 × 108% )

            To Premium on Bonds Payable $160,000 ($2,160,000 - $2,000,000)

              To Bonds Payable $2,000,000

(Being the issuance of the bond is recorded)

Here the cash is debited as it increased the assets and credited the bond payable & premium on bond payable is credited as it increased the liabilities