Blanding Company Issues $1,000,000 of 8%,10-Year Bonds at 98 on February

question 46

Multiple Choice

Blanding Company issues $1,000,000 of 8%,10-year bonds at 98 on February 28,2014.The bond pays interest on February 28 and August 31.The market rate of interest on the issuance date was 10%.Assume Blanding uses the straight-line method for amortization.The journal entry to record the first interest payment on August 31,2014 would be a:

• A) debit to Cash for $40,000.
• B) debit to Interest expense for $41,000.
• C) debit to Interest expense for $39,000.
• D) debit to Discount on bonds payable for $1,000.

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Definitions:

Monetary Items

Assets and liabilities that are to be received or paid in a fixed or determinable amount of money.

Payables

Amounts that a company owes to its creditors or suppliers for goods or services received.

Borrowings

Funds that a company or individual takes on loan from another party, to be repaid over time with interest.

Denominated

To specify the currency in which a financial transaction or instrument is expressed or required to be settled.