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A company received cash proceeds of $206,948 on a bond issue with a par value of $200,000. The difference between par value and issue price for this bond is recorded as a:

Answer :

sebastiansierraocm

Answer:

As a credit to premium on bonds payable for $6,948

Explanation:

A premium bond is a bond that sells at a higher price than it's par value because its coupon rate is higher than the prevailing market rate. In other words, the bond is more expensive to buy because it pays more interest than other bonds in the market.

Therefore, this company has issued a premium bond, and now must record the premium (the difference between the selling price and the par value) that it has to pay to investors.

The journal entry is:

ACCOUNT                                  DEBIT           CREDIT

Cash                                          $206,948

Bonds Payable                                               $200,000

Premium on Bonds Payable                          $6,948

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