Please select the correct answer. 6. Devon signed a 20-year note payable on Janu

Question

Please select the correct answer.

6. Devon signed a 20-year note payable on January 1, 2018. The note requires annual principal payments plus interest. The entry to record the annual payment on December 31, 2018 includes a A. credit to Interest Expense. B. debit to Interest Expense. C. credit to Long-term Notes Payable. D. debit to Cash. Which of the following is the correct journal entry to record the issuance of a $250,000 face value bond at 95? 7. Payable Accounts Cash A. Bonds Debit Credit 237,500 B. Cash 237,500 250,000 Discount on Bonds Payable Bonds Payable 12,500 237,500 12,500 237,500 C. Cash 237,500 Discount on Bonds Payable Bonds Payable 250,000 D. Bonds Payable Cash 237,500 8. Cat Corporation's bonds payable carry a stated interest rate of 8%, and the market rate of interest is 5%. The price of the Cat's bonds will be at A. a premium. B. a discount. C. maturity value. D. par value. Jessica's Antiques issued its 4%, 20-year bonds payable at a price of $288,500 (face value is $300,000). The company uses the straight-line amortization method for the bonds. Interest expense for each year is A. $12,000. B. $11,540. C. $15,000. D. $12,575. 10. Jana's Fitness Drinks has $850,000 of 20-year bonds payable outstanding. These bonds had a discount of $42,000 at issuance, which was 8 years ago. The company uses the straight- line amortization method. The carrying amount of these bonds payable today is A. $808,000. B. $824,800. C. $833,200. D. $892,000

Explanation / Answer

6) Annual payment journal entry :

Debit interest expenses and long term notes payable and credit cash

so answer is b) debit interest expenses

7) Journal entry :

so answer is c)

8) If bonds stated interest rate is higher than market rate then it means bonds is issued on premium

so answer is a) premium

9) Interest expenses for each year is :

Cash interest = (300000*4%) = 12000

Discount on bonds amortization = (300000-288500/20) = 575

Total interest expenses = 12575

so answer is d) 12575

10) Carrying amount of bonds payable :

Carrying amount = Face value-unamortized discount on bonds payable

= 850000-25200

Carrying amount = 824800

so answer is b) 824800

Unamortized discount = 42000-(42000/20*8) = 25200

Date accounts & explanation debit credit Cash 237500 Discount on bonds payable 12500 Bonds payable 250000

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