In June 2010, Gross Corporation Issued a Three-Year Non-Interest-Bearing Note

question 11

Multiple Choice

In June 2010, Gross Corporation issued a three-year non-interest-bearing note with a face value of $15, 000 and received cash of $11, 025.00 in exchange.The difference between the face value and the cash proceeds is accounted for as

• A)a premium and amortized over three years by the effective interest method
• B)interest expense in the current year
• C)a discount and amortized over three years by the effective interest method
• D)a discount and amortized over three years by the straight-line method

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Definitions:

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time.

Service Company

A business that provides intangible products or services to customers rather than physical goods.

Operating Cycle

The period it takes for a business to buy inventory, sell products, and generate cash from operations.

Merchandising Company

A business that purchases finished goods for the purpose of resale without further processing.