On 1 January 2010, Elegant Fragrances Company issues £1,000,000 face value, fi ve-yearbonds with annual interest payments of £55,000 to be paid each 31 December. Th e market interest rate is 6.0 percent. Using the eff ective interest rate method of amortisation,Elegant Fragrances is most likely to record:A . an interest expense of £55,000 on its 2010 income statement.B . a liability of £982,674 on the 31 December 2010 balance sheet.C . a £58,736 cash outfl ow from operating activity on the 2010 statement of cashfl ows.
On 1 January 2010, Elegant Fragrances Company issues £1,000,000 face value, fi ve-yearbonds with annual interest payments of £55,000 to be paid each 31 December. Th e market interest rate is 6.0 percent. Using the eff ective interest rate method of amortisation,Elegant Fragrances is most likely to record:A . an interest expense of £55,000 on its 2010 income statement.B . a liability of £982,674 on the 31 December 2010 balance sheet.C . a £58,736 cash outfl ow from operating activity on the 2010 statement of cashfl ows.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
On 1 January 2010, Elegant Fragrances Company issues £1,000,000 face value, fi ve-year
bonds with annual interest payments of £55,000 to be paid each 31 December. Th e market interest rate is 6.0 percent. Using the eff ective interest rate method of amortisation,
Elegant Fragrances is most likely to record:
A . an interest expense of £55,000 on its 2010 income statement.
B . a liability of £982,674 on the 31 December 2010
C . a £58,736 cash outfl ow from operating activity on the 2010 statement of cash
fl ows.
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