1.On the first day of the fiscal year, Lisbon Co. issued $1,000,000 of 10-year,
ID: 2474237 • Letter: 1
Question
1.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. The journal entry to record the amoritization of the bond premium (by straight-line method) for the year by Orange Inc. includes a credit to:
a. Interest Revenue for $5,000.
b. Investment in Lisbon Co. Bonds $5,000.
c. Investment in Lisbon Co. Bonds $2,500.
d. Interest Revenue for $2,500.
2.Debtors are interested in the times-interest-earned ratio because they want to
a. know what rate of interest the corporation is paying. b. be sure their debt is backed by collateral. c. know the tax effect of lending to a corporation. d. have adequate protection against a potential drop in earnings jeopardizing their interest payments.Explanation / Answer
1.
b. Investment in Lisbon Co. Bonds $5,000.
2.
d. have adequate protection against a potential drop in earnings jeopardizing their interest payments.
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