Question

On January 1, Raven Flight Company issues 3.25%, 10-year bonds with a par value of $1,250,000. The bonds pay interest annually. The market rate of interest is 3.00% and the bond selling price was $1,300,000. The bond issuance should be recorded as:

		Debit Cash $1,300,000; debit premium on Bonds Payable $50,000; credit Bonds Payable $1250,00.
		Debit Cash $1,300,000; credit Bonds Payable $1,250,000.
		Debit Cash $1,300,000; credit Bonds Payable $1,250,000; credit Premium on Bonds Payable $50,000.
		Debit Cash $1,300,000; credit Interest Expense $50,000; credit Bonds Payable $1,250,000.
		Debit Cash $1,300,000; credit Bonds Payable 1,300,000.

Answer 1

When bonds are issued at a premium, bonds payable is credited with the par value and the amount in excess of par is credit to premium on bonds payable.

$1,300,000 Debit to cash

$1,250,000 Credit to bonds payable

$50,000 Credit to premium on bonds payable

3rd option.