On October 1, 2010, You Borrow $200,000 at 6% Interest

question 86

Multiple Choice

On October 1, 2010, you borrow $200,000 at 6% interest and record the promissory note. In April and again in October of the following year, you are required to pay half the annual interest to your creditor. On December 31, 2010, your journal entry for the quarter should:

• A) debit Interest Expense for $3,000 and credit Interest Payable for $3,000.
• B) debit Cash for $3,000 and credit Accrued Interest for $3,000.
• C) debit Interest Expense for $6,000 and credit Cash for $6,000.
• D) debit Interest Expense for $6,000 and credit Notes Payable for $6,000.

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Definitions:

Market Price

The current price at which an asset or service can be bought or sold on the open market.

Coupon Bond

A bond that pays the holder a fixed interest payment (coupon) at regular intervals until the maturity date, when the principal amount is repaid.

Market Yield

The current return on investment for a security, factoring in its price variations and dividend payments.

Face Value

The nominal or dollar value printed on a financial instrument, such as a bond or currency note.