Questions: Multiple Choice Question A company issues 90,000 of 5%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts 95,000 for the bonds, the issuer will record the sale with a (debit/credit) to (Discount/Premium) on Bonds Payable in the amount of 5,000. debit; Discount credit Discount debit Premium credit; Premium

Multiple Choice Question A company issues 90,000 of 5%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year. If the issuer accepts 95,000 for the bonds, the issuer will record the sale with a (debit/credit) to (Discount/Premium) on Bonds Payable in the amount of 5,000. debit; Discount credit Discount debit Premium credit; Premium
Transcript text: Multiple Choice Question A company issues $\$ 90,000$ of $5 \%, 5$-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year, If the issuer accepts $\$ 95,000$ for the bonds, the issuer will record the sale with a (debit/credit) $\qquad$ to (Discount/Premium) $\qquad$ on Bonds Payable in the amount of $\$ 5,000$. debit; Discount credit Discount debit Premium credit; Premium
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Solution

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The answer is the last one (D): credit; Premium.

Explanation for each option:

  • Debit; Discount: This is incorrect because a discount occurs when bonds are sold for less than their face value. In this case, the bonds are sold for more than their face value.
  • Credit; Discount: This is incorrect because a discount would be recorded if the bonds were sold for less than their face value, which is not the case here.
  • Debit; Premium: This is incorrect because a premium is recorded as a credit, not a debit.
  • Credit; Premium: This is correct because the bonds were sold for more than their face value, resulting in a premium. The premium amount of $5,000 (the difference between the sale price of $95,000 and the face value of $90,000) is recorded as a credit to Premium on Bonds Payable.

Summary: The issuer will record the sale with a credit to Premium on Bonds Payable in the amount of $5,000.

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