On the First Day of the Fiscal Year, Lisbon Co

question 164

Multiple Choice

On the first day of the fiscal year, Lisbon Co. issued $1,000,000 of 10-year, 7% bonds for $1,050,000, with interest payable semiannually. Orange Inc. purchased the bonds on the issue date for the issue price. If Lisbon uses the straight-line method for amortizing the premium, the journal entry to record the first semiannual interest payment by Lisbon Co. would include a debit to

• A) Interest Payable for $30,000
• B) Interest Expense for $32,500
• C) Cash for $70,000
• D) Premium on Bonds Payable for $5,500

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Definitions:

Chart of Accounts

An organized list of all accounts in an entity’s financial system, used for classifying transactions.

Numbering System

A structured method for assigning unique identifiers to items to facilitate organization, tracking, and retrieval.

Identification

The process of recognizing or establishing the identity of a person or thing.

Businesses

Businesses refer to organizations or entities engaged in commercial, industrial, or professional activities, aiming to generate profits.