On January 1,your Company Issues a 5-Year Bond with a Face

question 94

Multiple Choice

On January 1,your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%.The market interest rate is 5%.The issue price of the bond was $10,866.Your company used the effective-interest method of amortization.At the end of the first year,your company should:

• A)debit Interest Expense for $543.30,debit Premium on Bonds Payable for $156.70,and credit Interest Payable for $700.
• B)debit Interest Expense for $700,credit Premium on Bonds Payable for $156.70,and credit Interest Payable for $543.30.
• C)debit Interest Expense for $700,debit Premium on Bonds Payable for $156.70,and credit Interest Payable for $543.30.
• D)debit Interest Expense for $543.30 and credit Interest Payable for $543.30.

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Definitions:

Fixed Overhead Budget Variance

The difference between the actual fixed overhead costs incurred and the budgeted fixed overhead costs.

Predetermined Fixed Manufacturing Overhead Rate

A rate used to allocate fixed manufacturing overhead to products based on a predetermined activity level.

Fixed Manufacturing Overhead Budget Variance

The difference between the actual fixed manufacturing overhead costs and the budgeted fixed overhead costs.

Variable Overhead Efficiency Variance

The difference between the actual variable overhead incurred during production and the standard cost of variable overhead allocated for the actual production volume.