A Corporation Issues Bonds That Pay Interest Each February 1

question 146

Multiple Choice

A corporation issues bonds that pay interest each February 1 and August 1.The corporation's December 31 adjusting entry might include a

• A)debit to Unamortized Bond Premium.
• B)debit to Cash.
• C)debit to Bond Interest Payable.
• D)credit to Bond Interest Income.

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Definitions:

Accounts Payable Balance

Accounts payable balance represents the total amount a company owes to its suppliers or creditors for purchases made on credit.

Costly Trade Credit

Refers to the higher cost associated with buying goods or services on credit, when compared to paying cash upfront, due to interest or fees imposed by the seller.

Effective Annual Rate

The real return on an investment, accounting for the effect of compounding over a period.

Discount

A reduction to the usual price of goods or services, or in finance, the difference between the face value of a bond and its selling price.