Question

Suppose that Sunland issues 3,700, 12-year, 10%, $1,000 bonds dated January 1, 2025, at 103. The journal entry to record the sales of the bonds will include:

a. A debit to Cash and a credit to Bonds Payable for $3,851,000.

b. A debit to Cash and a credit to Premium on Bonds Payable for $3,851,000.

c. A debit to Cash and a credit to Bonds Payable for $3,700,000.

d. A debit to Cash and a credit to Premium on Bonds Payable for $3,700,000.

Answer 1

The journal entry to record the sales of the bonds will include a debit to Cash and a credit to Bonds Payable for $3,851,000.(option A)

Step-by-step explanation:

The correct journal entry to record the sales of the bonds will be:

A. A debit to Cash and a credit to Bonds Payable for $3,851,000.

This is because the company issued 3,700 bonds at $1,000 each, so the total cash inflow is 3,700 x $1,000 = $3,700,000. However, the bonds were issued at a premium of 103, so the total cash inflow is increased by 3,700 x $1,000 x 3% = $111,000. Therefore, the total amount debited to Cash is $3,700,000 + $111,000 = $3,851,000. The credit is made to Bonds Payable since the company is obligated to repay the bondholders the principal amount at the maturity date.