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

question 1

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 interest accrual entry at December 31,2014 would include:

• A) a debit to Interest expense $26,667.
• B) a credit to Interest payable of $26,667.
• C) a credit to Cash of $26,667
• D) no entry at December 31, 2014.

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Definitions:

Unrealized Profits

Earnings that are reported on paper from investments but are not yet actualized through a sale transaction.

Intercompany Sales

Transactions between companies under the same parent company, often used for the transfer of goods and services.

Gross Margin

A company's sales revenue minus its cost of goods sold, used to assess the efficiency of a company's core operations.

Inventory

The total amount of goods and materials held by a company for the purpose of resale or production.