On January 1, a Company Issues Bonds Dated January 1

question 119

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 first interest payment using the effective interest method of amortization is:

• A) Debit Interest Expense $12,648.28; debit Premium on Bonds Payable $1,351.72; credit Cash $14,000.00.
• B) Debit Interest Payable $14,000.00; credit Cash $14,000.00.
• C) Debit Interest Expense $12,648.28; debit Discount on Bonds Payable $1,351.72; credit Cash $14,000.00.
• D) Debit Interest Expense $15,351.72; credit Discount on Bonds Payable $1,351.72; credit Cash $14,000.00.
• E) Debit Interest Expense $15,351.72; credit Premium on Bonds Payable $1,351.72; credit Cash $14,000.00.

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Definitions:

Top-Down Decision-Making

A hierarchical approach to decision making where decisions are made at the top levels and passed down to lower levels for implementation.

Direct Approach

A straightforward method of communication or action where intentions or needs are stated openly and without evasion.

Indirect Approach

A communication method where the main point is not stated at the beginning but comes after the explanation or background information.

Audience

The group of people who are the intended recipients of a message, performance, or piece of work.