On January 1, a Company Issues Bonds Dated January 1

question 64

Multiple Choice

On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $312,177.
-The journal entry to record the issuance of the bond is:

• A) Debit Cash $300,000; debit Premium on Bonds Payable $12,177; credit Bonds Payable $312,177.
• B) Debit Cash $312,177; credit Discount on Bonds Payable $12,177; credit Bonds Payable $300,000.
• C) Debit Cash $312,177; credit Bonds Payable $312,177.
• D) Debit Bonds Payable $300,000; debit Bond Interest Expense $12,177; credit Cash $312,177.
• E) Debit Cash $312,177; credit Premium on Bonds Payable $12,177; credit Bonds Payable $300,000.

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Definitions:

Short Run

In economics, the short run refers to a period during which at least one of a firm's inputs cannot be changed, limiting its capacity to adjust to demand changes.

Long Run

A period during which all factors of production and costs are variable, allowing full adjustment to any change in market conditions.

Average-Total-Cost Curve

A graphical representation showing the relationship between the average total cost of producing a good and the quantity of the good produced.

Diminishing Marginal Product

A principle stating that, holding all else constant, an increase in the quantity of one input will eventually lead to lower additional output per unit of input.