Homework Answers
| Date | Accounts Titles and Explanations | Debit | Credit |
| Jan. 1 | Cash | $648,900 | |
| Premium on Bonds Payable | $18,900 | ||
| 4% Bonds Payable | $630,000 |
Face value of Bonds = $100
No. of bonds = Total face value / Face value of 1 bond = $630,000 / $100 = 6,300 bonds.
Actual cash received from issue of bonds = No. of bonds * Issue price = 6,300 bonds * $103 = $648,900
Premium on bonds payable = Actual cash received from issue - Total Face value of bonds = $648,900 - $630,000 = $18,900.
The reason for issue of shares at premium is because interest rate in market is lower than the rate offered by the bonds, which makes the buyer to pay a premium.
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