On January 1, Charlie Corporation Issued $3,000,000, 14%, 5-Year Bonds

question 122

Multiple Choice

On January 1, Charlie Corporation issued $3,000,000, 14%, 5-year bonds with interest payable on January 1 and July 1. The bonds sold for $3,216,288. The market rate of interest for these bonds was 12%. Under the effective-interest method, the debit entry to interest expense on July 1 is for (rounded to the nearest dollar) :

• A) $180,000.
• B) $188,237.
• C) $192,978.
• D) $210,000.

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Definitions:

Merchandise

Goods bought and sold by a business in the ordinary course of its trading activity.

Credit

An accounting entry that increases liabilities or equity or decreases assets, or an arrangement to receive cash, goods, or services now and pay for them in the future.

Credit Sales

Transactions where goods or services are sold to a customer with an agreement to pay at a later date.

Cash Collection

The process of receiving and processing payments from customers.