On October 1, 2010, Pennington Company Issued a $40,000, 10

question 118

Multiple Choice

On October 1, 2010, Pennington Company issued a $40,000, 10%, nine-month interest-bearing note. If the Pennington Company is preparing financial statements at December 31, 2010, the adjusting entry for accrued interest will include a:

• A) credit to Notes Payable of $1,000.
• B) debit to Interest Expense of $1,000
• C) credit to Interest Payable of $2,000.
• D) debit to Interest Expense of $1,500.

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Definitions:

Option To Wait

The choice to delay an investment or decision, which might carry value by allowing more information to be gathered, potentially leading to a better informed decision.

Discounted Cash Flow

A valuation method used to estimate the value of an investment based on its expected future cash flows, adjusted for the time value of money.

Projected Cash Flows

Estimates of the amount of money expected to move in and out of a business over a specified period in the future.

Capital Rationing

The process of selecting the most profitable projects to invest in when capital is limited.