A Company Issued 8%, 15-Year Bonds with a Par Value $\begin{array}{|c|r|r|}\hline \text { Bond Interest Expense } & 22,000 & \\\hline \text { Cash } & & 22,000 \\\hline\end{array}$

question 84

Multiple Choice

A company issued 8%, 15-year bonds with a par value of $550,000. The current market rate is 8%. The journal entry to record each semiannual interest payment is:

• A) \(\begin{array}{|c|r|r|}
• \hline \text { Bond Interest Expense } & 22,000 & \\
• \hline \text { Cash } & & 22,000 \\
• \hline
• \end{array}\)
• B) \(\begin{array}{|c|r|r|}
• \hline \text { Bond Interest Expense } & 44,000 & \\
• \hline \text { Cash } & & 44,000 \\
• \hline
• \end{array}\)
• C) \(\begin{array}{|c|r|r|}
• \hline \text { Bond Interest Expense } & 555,000 & \\
• \hline \text { Cash } & & 555,000 \\
• \hline
• \end{array}\)
• D) \(\begin{array}{|c|r|r|}
• \hline \text { Bond Interest Expense } & 660,000 & \\
• \hline \text { Bond Payable } & & 660,000 \\
• \hline
• \end{array}\)
• E) No entry is needed, since no interest is paid until the bond is due

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Definitions:

Operating Expenses

Costs associated with the day-to-day operations of a business, excluding costs related to production.

Law of Diminishing Returns

An economic principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other variables remain at a constant.

Marginal Product

The additional output that is produced by employing one more unit of a particular input, keeping all other inputs constant.

Variable Resource

An input in production that can be adjusted in the short term to change the level of output.