Question

 

Casper Company issues bonds with a face value of $900,000 for $1,112,000. Which ONE of the following would be included in the journal entry necessary on the books of Casper Company?

		DEBIT to Cash of $900,000
		DEBIT to Premium on Bonds Payable of $212,000
		DEBIT to Bonds Payable of $900,000
		CREDIT to Cash of $1,112,000
		DEBIT to Discount on Bonds Payable of $212,000

Answer 1

Ans.	There is no any option of correct answer.
	The following journal entry would be prepared for this transaction.
	Transaction	Particulars	Debit	Credit
		Cash	$1,112,000
		Bonds payable		$900,000
		Premium on bonds payable		$212,000
		(bonds issued on premium)
	*Cash is debited on its issue price.
	*Bonds payable are always credited on face value.
	*Premium on bonds payble = Cash - Bonds payable
		$1,112,000 - $900,000
		$212,000
	Face value > Issue price = Discount on bonds payable
	Face value < Issue price = Premium on bonds payable