On 1 January 2017,Finch Company Issued $75,000 of Five Year $$\begin{array} { | c | l | l | } \hline \text { Interest expense } & \$ 4500 & \\\hline \text { Cash } & & \$ 4500 \\\hline\end{array}$$

question 51

Multiple Choice

On 1 January 2017,Finch Company issued $75,000 of five year debentures with a stated rate of 8%.The market rate at time of issue was 12%,so the debentures were discounted and sold for $74,401.Finch uses the effective-interest method of amortisation for debenture discount.Half-yearly interest payments are made on 30 June and 31 December of each year.Which of the following is the correct journal entry to record the first interest payment? (Round all amounts to the nearest dollar. )

• A) \[\begin{array} { | c | l | l | }
• \hline \text { Interest expense } & \$ 4500 & \\
• \hline \text { Cash } & & \$ 4500 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | l | l | l | }
• \hline \text { Interest expense } & \$ 4500 & \\
• \hline\text { Discount on debentures } & & \\
• \text { payable } & & 3000 \\
• \hline \text { Cash } & & 1500 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | c | l | l | }
• \hline \text { Interest expense } & \$ 464 & \\
• \hline \begin{array} { l }
• \text { Discount on debentures } \\
• \text { payable }
• \end{array} & & 1464 \\
• \hline \text { Cash } & & 3000 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | c | l | l | }
• \hline \text { Interest expense } & \$ 3000 & \\
• \hline \text { Discount on debentures payable } & 1500 & \\
• \hline \text { Cash } & & \$ 4500 \\
• \hline
• \end{array}\]

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Definitions:

Colonization

The process by which a central power dominates the surrounding land and its components.

Roanoke

Often referred to as the "Lost Colony," it was an early English settlement in North America that mysteriously disappeared.

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The practice of commissioning private ships to capture enemy ships during wartime, authorized by a government through letters of marque.

Trade

The exchange of goods and services between individuals, businesses, or countries, which can be domestic or international in scope.