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

Answer 1

The Correct Option is C

When debentures are issued at premium and redeemed at premium, specific accounts are affected in the journal entry process. Here, we explore which accounts are debited or credited:

(B) Loss on issue of debentures account is debited: This account represents the adjustment needed for any expenses or losses associated with the issuance of debentures when issuing at a premium. Loss inherently leads to a debit entry.

(C) Security premium account is credited: When debentures are issued at a premium, the excess amount received over the face value is credited to the security premium account. This is because the premium constitutes income or an additional inflow for the issuer.

(D) Premium on redemption of debentures account is credited: When debentures are redeemed at a premium, the issuer acknowledges premium liability, thus leading to a credit in this account, signifying an outflow or future obligation.

Thus, the correct combination is: (B), (C), and (D) only.

Answer 2

In this question, we are asked about the journal entries made when debentures are issued at a premium and redeemed at a premium.

Let's evaluate the options:

(A) Discount on issue of debentures account is credited:
This option is incorrect because when debentures are issued at a premium, the account to be credited is not the discount on issue of debentures. In fact, it should be the "Securities Premium Account." So, this does not apply.

(B) Loss on issue of debentures account is debited:
This option is correct. When debentures are issued at a premium, there is no loss on issue. However, if debentures are redeemed at a premium, a loss may be recorded, and the "Loss on issue of debentures" account would be debited to reflect this.

(C) Security premium account is credited:
This option is correct. When debentures are issued at a premium, the "Securities Premium Account" is credited. This account reflects the amount received in excess of the face value of the debentures.

(D) Premium on redemption of debentures account is credited:
This option is also correct. When debentures are redeemed at a premium, the premium amount paid in excess of the face value is credited to the "Premium on Redemption of Debentures" account.

Therefore, the correct answer is:

• (B) Loss on issue of debentures account is debited
• (C) Security premium account is credited
• (D) Premium on redemption of debentures account is credited

Thus, the correct option is (3) (B), (C) and (D) only.