A Company Issued 8%, 15-Year Bonds with a Par Value

question 3

Multiple Choice

A company issued 8%, 15-year bonds with a par value of $550,000. The current market rate is 8%. The journal entry to record each semiannual interest payment is:

• A) Debit Bond Interest Expense $22,000; credit Cash $22,000.
• B) Debit Bond Interest Expense $44,000; credit Cash $44,000.
• C) Debit Bond Interest Expense $36,667; credit Cash $36,667.
• D) Debit Bond Interest Expense $660,000; credit Cash $660,000.
• E) No entry is needed, since no interest is paid until the bond is duE.$550,000 x .08 x 1/2 year = $22,000

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Definitions:

Dividends

Distributions of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.

Treasury Stock

Shares of a company's own stock held by the company itself, often bought back from shareholders and not considered when calculating earnings per share or dividends.

Retained Earnings

The portion of a company's profits that is not distributed to shareholders as dividends but is kept by the company for reinvestment.

Net Income

The final financial gain of a business once taxes and all expenses are subtracted from the overall income.