Question

On January 1, 2024, Fabrikam Labs issued 1,000 bonds, each with a face value of $1,000, for 102.7323. The stated interest is 3.8%, and the market rate at the time the bonds were issued was 3.2%. The bonds are due on January 1, 2029 (5 year term) with interest payments due annually every January 1st. The company received cash from the sale of the bonds. Record the journal entry for the sale of the bonds.

Answer 1

Answer:

cash                              1,027,323 debit

  bonds payable                        1,000,000 credit

  premium on bonds payable        27,323 credit

Explanation:

To obtain the cash proceed we multiply the bonds issued by the face value and then for the point issued.

1,000 shares x $1,000 face value x 102.7323/100 points = 1,027,323

face value 1,000 shares x $1,000 face value =              1,000,000

premium on bonds payable                                                      27,323

As the issuance collected more than his face value there is a premium on bonds payable.