Question

The rule to remember when accounting for bonds sold at a premium or at a discount is that Bonds Payable is always credited for the face amount of the bond issue, regardless of the selling price. If a bond with a face value of $50,000 was sold at a premium for $52,000, what account would be credited and for how much?

Answer 1

Answer:

Cr Bonds Payable account 50,000

Cr Premium on Bonds Payable account 2,000

Explanation:

The complete journal record should be:

• Dr Cash account 52,000
• Cr Bonds Payable account 50,000
• Cr Premium on Bonds Payable account 2,000

Since cash is an asset and it increases, it should be debited.

Since bonds payable and premium on bonds payable are liabilities and they increase, they should be credited.