Sugar city issued $2 million of bonds to fund the construction of a new city office building. the bonds have a stated rate of interest of 5% and were sold at 101. which of the following entries should be made in the capital projects fund to record this event
a) debit cash: $2.02 million; credit bonds payable $2 million and premium on bonds payable $.02 million.
b) debit cash: $2.02 million; credit bonds payable $2 million and other financing sources $.02 million
c) debit cash: $2.02 million; credit other financing sources $2.02 million
d) debit cash: $2.02 million; credit other financing sources $2 million and revenue $.02 million.

The correct answer here is C) cash account would be debited by $2.02 million and the other financing resource account would be credited by the same amount of $2.02 million.

Explanation:

Sugar city first issued $2 million bonds whose face value was $100 and the number of shares were 20,000, with interest rate of 5%. And after some time those shares were sold at $101 and cash was received , so now the total amount received is 20,000 X $101 = $2.02 million, so the journal entry here would be -

SN      PARTICULAR                                       LF         DEBIT                 CREDIT

1          CASH                                                                $2.02 MILLION  

         TO OTHER FINANCING RESOURCES                                    $2 MILLION

      ( BONDS SOLD @ $101 )

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