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Question 6 View Policies Current Attempt in Progress Crane Company issued $630,000, 10-year, 4% bonds at 103. (a) Prepare the
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Answer #1
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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