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:

The correct answer here is C) cash account would be debited by $2.02 million and the other financing resource account would be credited by the same amount of $2.02 million.

Explanation:

Sugar city first issued $2 million bonds whose face value was $100 and the number of shares were 20,000, with interest rate of 5%. And after some time those shares were sold at $101 and cash was received , so now the total amount received is 20,000 X $101 = $2.02 million, so the journal entry here would be -

SN      PARTICULAR                                       LF         DEBIT                 CREDIT

1          CASH                                                                $2.02 MILLION  

         TO OTHER FINANCING RESOURCES                                    $2 MILLION

      ( BONDS SOLD @ $101 )