On January 1,2019,Brooklyn Company Purchases $82,000,8% Bonds at a Price

question 28

Multiple Choice

On January 1,2019,Brooklyn Company purchases $82,000,8% bonds at a price of 90 and a maturity date of January 1,2029.Brooklyn Company intends to hold the bonds until maturity and has the ability to do so.Interest is paid semiannually,on January 1 and July 1.Brooklyn Company has a calendar year and uses the straight-line amortization method for discounts and premiums.The adjusting entry to amortize the bond discount or premium on December 31,2019 is:

• A)debit Interest Receivable $3,280 and credit Interest Revenue $3,280.
• B)debit Interest Receivable $6,560 and credit Interest Revenue $6,560.
• C)debit Held-to-Maturity Investment in Bonds $410 and credit Interest Revenue $410.
• D)debit Held-to-Maturity Investment in Bonds $820 and credit Interest Revenue $820.

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Definitions:

Risk-Free Rate

The theoretical return on investment with no risk of financial loss, typically represented by the yield on government bonds like U.S. Treasury securities.

Semistrong Efficient

A form of market efficiency that states all public information is already calculated into stock prices, and thus, no one can achieve higher returns by trading on that information.

Expected Returns

The anticipated return on an investment, taking into account all known risks and rewards associated with it.

Equilibrium

A condition or state in which economic forces are balanced, such as when supply equals demand in a market.