On January 1, a Company Issues Bonds Dated January 1

question 88

Multiple Choice

On January 1, a company issues bonds dated January 1 with a par value of $400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. The journal entry to record the issuance of the bond is:

• A) Debit Cash $400,000; debit Discount on Bonds Payable $16,207; credit Bonds Payable $416,207.
• B) Debit Cash $383,793; debit Discount on Bonds Payable $16,207; credit Bonds Payable $400,000.
• C) Debit Bonds Payable $400,000; debit Interest Expense $16,207; credit Cash $416,207.
• D) Debit Cash $383,793; debit Premium on Bonds Payable $16,207; credit Bonds Payable $400,000.
• E) Debit Cash $383,793; credit Bonds Payable $383,793.

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Definitions:

Units Manufactured

The total number of units produced by a company during a specific period.

Master Budget

A comprehensive financial planning document that includes all of the lower-level budgets within a company, projecting its financial activities.

Production Budget

A financial plan that estimates the number of units to be produced to meet sales goals, factoring in beginning inventory and desired ending inventory.

Cash Budget

A financial plan that estimates cash inflows and outflows over a specific period, often used to assess whether a company has sufficient liquidity.