Question

Sugar City issued $2 million of bonds to fund the construction of a new city office building. The bonds have a stated rate of interest of 5% and were sold at 101. Which of the following entries should be made in the Capital Projects Fund to record this event?
A) Debit Cash $2.02 million; Credit Bonds Payable $2 million and Premium on bonds payable $.02 million
B) Debit Cash $2.02 million; Credit Bonds payable $2 million and Other financing sources $.02 million.
C) Debit Cash $2.02 million; Credit Other financing sources $2.02 million.
D) Debit Cash $2.02 million; Credit Other financing sources $2 million and Revenue $.02 million.

Answer 1

Answer:

C) Debit Cash $2.02 million; Credit Other financing sources $2.02 million

Explanation:

A private firm will reocrd as follow:

As the bonds are sold at a higher price than their face value we recognize a premium which will be amortized over the life of the bond.

But in this case, we are doing a public accounting thus, we must record the cash received and credit other financing sources for the whole amount funded.