Table 15-7 Lex Enterprises Is Considering Alternative Ways of Raising Capital for Capital

question 115

Multiple Choice

Table 15-7
Lex Enterprises is considering alternative ways of raising capital for the purchase of a new factory. One alternative suggested by the controller is the issuance of bonds. After discussions with an underwriter, Lex decides to issue $5,000,000 of 7%, 10-year bonds dated May 1, 2017, with interest payment dates of November 1 and May 1. Lex's year end is December 31. Lex uses the effective-interest method of amortization.
-Refer to Table 15-7.Assuming the bonds were issued on May 1,2017,at 87 when the market interest rate was 9%,and the company uses the effective interest method of amortization,the December 31,2017,adjusting entry to accrue interest and record applicable amortization would include a:

• A) debit to interest expense for $58,333
• B) debit to bonds payable for $65,561.25
• C) credit to discount on bonds payable for $7,228
• D) credit to premium on bonds payable for $7,228

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