Answer:
(DR) Cash $4,895,980; (CR) Bonds Payable $4,000,000; (CR) $895,980
Explanation:
The problem only requires the journal entry of the issuance of the bonds on January 1, 2016.
Simply <u>debit "Cash"</u> for the amount of the price which is $4,895,980.
Then <u>ALWAYS credit "Bonds Payable"</u> on its issued value of $4,000,000.
Now, since the cash price is greater than the issued value, the difference of $895,980 will be called as "Premium on Bonds Payable" and it will be credit.
So the entry would look like this:
(DR) Cash $4,895,980
(CR) Bonds Payable $4,000,000
(CR) Premium on Bonds Payable $895,980
