Kid Karate Issued $100,000 of 6%, 10 Year Bonds When

question 142

Multiple Choice

Kid Karate issued $100,000 of 6%, 10 year bonds when the market rate of interest was 5%. The proceeds from this bond issue were $107,000. Using the effective interest method of amortization, which of the following statements is true? Assume interest is paid annually.

• A)Interest payments to bondholders each period will be $5,000.
• B)Interest payments to bondholders each period will be $5,350.
• C)Amortization of the premium for the first interest period will be $5,000.
• D)Amortization of the premium for the first interest period will be $650.

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Definitions:

Owner's Capital

The amount of money and other forms of assets invested into a business by the owner(s), minus any withdrawals, representing the owner’s equity.

Accounts Debited

The accounts on the left side of the accounting equation that increase with a debit transaction and decrease with a credit transaction.

Accounts Credited

Refers to the entries made on the credit side of a ledger, indicating a reduction in assets or an increase in liabilities or equity.

Supplies On Account

The purchase of supplies on credit, where payment is deferred to a later date.