Question

On December 31, 2019, Spearmint, Inc., issued $450,000 of 9 percent, 3-year bonds for cash of $461,795. Prepare the necessary journal entry for Spearmint, Inc.

Answer 1

Answer:

Dr Cash for $461,795,

Cr Premium on Bonds Payable for $11,795

Cr Bonds Payable for $450,000

Explanation:

Journal entries

Dr Cash for $461,795,

Cr Premium on Bonds Payable for $11,795

Cr Bonds Payable for $450,000

(Issue price of $461,795 - par value of $450,000) =$11,795

Answer 2

Answer:

Dr Cash         $461,795

Cr Bonds payable                    $450,000

Cr Premium on bonds payable $11,795

Explanation:

The journal entries to record the issue of bonds for the proceeds of $461.795 is to debit the cash amount as the cash has increased and credit would $450,000 in bonds payable account and the balance of $11,795($461,795-$450,000) is the premium on the issue and it is credited to premium on bonds account.

The bonds payable is credited because the $450,000 represents obligation owed to bondholders