The Journal Entry a Company Records for the Payment of Interest

question 102

Multiple Choice

The journal entry a company records for the payment of interest, interest expense, and amortization of bond premium is

• A) debit Interest Expense, credit Cash and Premium on Bonds Payable
• B) debit Interest Expense, credit Cash
• C) debit Interest Expense and Premium on Bonds Payable, credit Cash
• D) debit Interest Expense, credit Interest Payable and Premium on Bonds Payable

---

Definitions:

P/E

Price-to-Earnings ratio, a valuation metric that compares a company's market share price to its per-share earnings, used to assess if a stock is over or under-valued.

Free Cash Flow

Cash generated by a company's operations minus capital expenditures, indicating the amount of cash a company can distribute to shareholders or reinvest.

Net Debt

The total debt of a company minus its cash and cash equivalents, indicating the actual debt burden on the company.

Cost of Equity

The return that a company requires to decide if an investment meets capital return requirements and is often used in financial modeling for valuing a company.