Blanding Company Issues $1 000 000 of 8%, 10- Year

question 98

Multiple Choice

Blanding Company issues $1 000 000 of 8%, 10- year debentures at 98 on 28 February 2014. The debenture pays interest on 28 February and 31 August. The market rate of interest on the issue date was 10%. Assume Blanding uses the straight- line method for amortisation. The interest accrual entry at 31 December 2014 would include:

• A)no entry at 31 December 2014.
• B)a credit to Cash of $26 667.
• C)a debit to Interest expense $26 667.
• D)a credit to Interest payable of $26 667.

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Definitions:

Marginal-Cost Curve

A graphical representation showing how the cost of producing one additional unit of a good varies as the quantity of production changes.

Additive Manufacturing

A method that involves building items by depositing material in successive layers, widely referred to as 3D printing.

Fixed Set-Up Costs

Initial costs that do not vary with the level of production or sales, such as equipment purchases or facility leases, needing to be paid before production starts.

Economies of Scale

The savings businesses gain from operating at a larger scale, where the expense for each unit produced diminishes as the scale enlarges.