On January 2, 2014, Mahoney Sales Issued $10,000 in Bonds

question 88

Multiple Choice

On January 2, 2014, Mahoney Sales issued $10,000 in bonds for $9,400. They were 5-year bonds with a stated rate of 4%, and pay semiannual interest payments. Mahoney Sales uses the straight-line method to amortize the bond discount. Immediately after issue of the bonds, the ledger balances appeared as follows: After the first interest payment on June 30, 2014, what was the balance in the discount account?

• A)Debit of $540
• B)Debit of $600
• C)Debit of $660
• D)Credit of $60

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Definitions:

Retroactive Benefits

Retroactive benefits refer to payments or compensations provided for a period before the benefits were approved or a claim was settled.

Actuarial Present Value

Actuarial Present Value is the calculation of the current value of future cash flows or payments, taking into account factors such as mortality rates and interest.

Accumulated Benefit Obligation

The present value of future retirement benefits earned up to a certain point in time, under a defined benefit pension plan.

Prior Service Cost

Costs recognized when a pension plan initiates or changes, relating to services provided by employees in prior periods.