Question

qs 14-8 (algo) journalizing premium bond issuance lo p3
garcia company issues 10.0%, 15 - year bonds with a par value of $330,000 and semiannual interest payments. on the issue date, the annual market rate for these bonds is 8.0%, which implies a selling price of 119 1/2.
prepare the journal entry for the issuance of these bonds for cash on january 1.
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journal entry worksheet
1
record the issue of bonds with a par value of $330,000 at a selling price of 119 1/2.
note: enter debits before credits.
date general journal debit credit
january 01

Explanation:

Step1: Calculate the cash received

The selling - price is 119 1/2 or 119.5% of the par value. The par value of the bonds is $330,000. So, the cash received is $330,000×1.195 = $394,350.

Step2: Determine the premium on bonds payable

The premium on bonds payable is the difference between the cash received and the par value of the bonds. Premium = Cash received - Par value = $394,350 - $330,000=$64,350.

Step3: Record the journal entry

When bonds are issued at a premium, we debit Cash for the amount received, credit Bonds Payable for the par value, and credit Premium on Bonds Payable for the premium amount.

Date	General Journal	Debit	Credit
	Bonds Payable		$330,000
	Premium on Bonds Payable		$64,350

Answer:

Date	General Journal	Debit	Credit
	Bonds Payable		$330,000
	Premium on Bonds Payable		$64,350