Jacobs Company Issued Bonds with $172,000 Face Value on January

question 111

Multiple Choice

Jacobs Company issued bonds with $172,000 face value on January 1, Year 1. The bonds were issued at 105 and carried a 5-year term to maturity. They had a 7% stated rate of interest that was payable in cash on December 31st of each year. Jacobs uses the straight-line method of amortization. Based on this information alone, the recognition of interest expense on December 31, Year 1 would act to:

• A) Decrease stockholders' equity by $10,320, decrease liabilities by $1,720, and decrease assets by $12,040.
• B) Decrease both assets and stockholders' equity by $12,040.
• C) Decrease both assets and stockholders' equity by $10,320.
• D) Increase liabilities by $1,720, decrease assets by $10,320, and decrease stockholders' equity by $12,040.

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Definitions:

BMC Component

An essential element of the Business Model Canvas, a strategic management tool for developing new or documenting existing business models.

Customer Segments

The process of dividing a market of potential customers into groups, or segments, based on different characteristics.

Channels

Pathways or mediums through which products or services are distributed to the end consumer.

Infrastructure

The fundamental facilities and systems serving a country, city, or area, including transportation, communication, utilities, and public institutions, necessary for economic activity.