Westheimer Company’s December 31, 2012 balance sheet included the following: Bon

Question

Westheimer Company’s December 31, 2012 balance sheet included the following:

     Bonds payable, 8%, due in 2020, net of discount $165,045                       $2,834,955

Determine if the following statements are true or false and then select the correct response.

                                _____ When the bonds were issued, the market rate of interest was less than 8%.

                                _____ Interest expense on the bonds was $240,000 in 2012.

                                _____  Westheimer pays a total of $240,000 for interest each year

False, False, False

True, True, False

True, False, True

False, False, True

none of the above

False, False, False

True, True, False

True, False, True

False, False, True

none of the above

Explanation / Answer

d. False False True

Westheimer issud 8 % bond at discout. It is issued at discount is an indication that market rate is more than 8 %. We are providing effective rate of more than 8 % by offering bond at discount

Interest expense of the bond is 240,000 plus amortisation cost. 240,000 is the cash paid each year as interest. Total interest expense is cash paid plus amortisation.

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