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

question 141

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, debit Premium on Bonds Payable for $157, and credit Interest Payable for $700.
• B) debit Interest Expense for $700, credit Premium on Bonds Payable for $157, and credit Interest Payable for $543.
• C) debit Interest Expense for $700, debit Premium on Bonds Payable for $157, and credit Interest Payable for $543.
• D) debit Interest Expense for $543 and credit Interest Payable for $543.

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Definitions:

Power Steering

A system that uses hydraulic or electric assistance to reduce the effort needed to steer a vehicle.

Manual Transmission

A type of vehicle transmission that requires the driver to manually shift gears while driving.

Main Effects

The direct impact of an independent variable on a dependent variable in an experimental design, ignoring the effects of other variables.

Interactions

The reciprocal actions or influences between entities, such as between individuals, groups, or systems.