Question

When debentures are issued at premium and redeemed at premium, the journal entry will have the following combination:
(A) Discount on issue of debentures account is credited
(B) Loss on issue of debentures account is debited
(C) Security premium account is credited
(D) Premium on redemption of debentures account is credited

• A. (A), (B), and (D) only
• B. (A), (B), and (C) only
• C. (A), (B), (C), and (D)
• D. (B), (C), and (D) only

Answer 1

The Correct Option is C

Key Accounting Elements:

• (A) Discount on Issue of Debentures Account: Is not credited. Debentures are being issued at a premium, so there is no discount. This may be debited when being written off against profits.
• (B) Loss on Issue of Debentures Account: Is debited to recognize the potential loss at redemption, as the redemption value exceeds the face value.
• (C) Security Premium Account: Is credited to account for the premium received at the time of issue.
• (D) Premium on Redemption of Debentures Account: Is an account is created and credited at the time of issue to recognize the liability for the premium payable on redemption. This account will then be debited at the time of redemption.

Journal Entry Combination:

Based on the elements described above, a comprehensive journal entry related to the issue and redemption of debentures at a premium will involve considering options (A) to (D).

• While A is not directly credited in this scenario, it could be debited if we are writing off the premiums against existing profits.

Correct Elements: (A), (B), (C), and (D).

Note: The actual journal entry may vary depending on the specific accounting standards being followed and the context of the transaction.

Answer 2

When debentures are issued at a premium, the Security Premium Account (C) is credited. When debentures are redeemed at a premium, the Premium on Redemption of Debentures Account (D) is credited. The Loss on Issue of Debentures Account (B) is debited for the loss on issue. Correct Answer: Option 3.