On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 104, resulting in a 4% premium. They had a 20-year term and a stated rate of interest of 7% payable in cash on December 31 of each year. The effective rate of Interest 5.633%. Assuming Residence uses the effective Interest rate method, the journal entry necessary to recognize Interest expense on December 31, Year 1 is Multiple Choice Account Title Interest Expense Premium on Bonds Payable Cash Account Title Interest Expense Premium on Bonds Payable Cash Account Title Interest Expense Premium on Bonds Payable Cash Account Title Interest Expense Cash Debit 3,449 51 Debit 3,349 51 Debit 3,551 Debit 3,500 Credit 3,500 Credit 3,400 Credit 51 3,500 Credit 3,500
On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 104, resulting in a 4% premium. They had a 20-year term and a stated rate of interest of 7% payable in cash on December 31 of each year. The effective rate of Interest 5.633%. Assuming Residence uses the effective Interest rate method, the journal entry necessary to recognize Interest expense on December 31, Year 1 is Multiple Choice Account Title Interest Expense Premium on Bonds Payable Cash Account Title Interest Expense Premium on Bonds Payable Cash Account Title Interest Expense Premium on Bonds Payable Cash Account Title Interest Expense Cash Debit 3,449 51 Debit 3,349 51 Debit 3,551 Debit 3,500 Credit 3,500 Credit 3,400 Credit 51 3,500 Credit 3,500
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 104, resulting in a 4% premium. They had a 20-year term and a stated rate of Interest of 7% payable in cash on December 31 of each year. The effective rate of Interest was
6.633%. Assuming Residence uses the effective interest rate method, the Journal entry necessary to recognize Interest expense on December 31, Year 1 Is
Multiple Choice
Account Title
Interest Expense
Premium on Bonds Payable
Cash
Account Title
Interest Expense
Premium on Bonds Payable
Cash
Account Title
Interest Expense
Premium on Bonds Payable
Cash
Account Title
Interest Expense
Cash
Debit
3,449
51
Debit
3,349
51
Debit
3,551
Debit
3,500
Credit
3,500
Credit
3,400
Credit
51
3,500
Credit
3,500](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa10265c9-c446-4f5e-88cf-d8226c0fdc6d%2F4e45325d-76db-4fc2-ae66-a6bdb17288b8%2Ftbe37o9_processed.png&w=3840&q=75)
Transcribed Image Text:On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 104, resulting in a 4% premium. They had a 20-year term and a stated rate of Interest of 7% payable in cash on December 31 of each year. The effective rate of Interest was
6.633%. Assuming Residence uses the effective interest rate method, the Journal entry necessary to recognize Interest expense on December 31, Year 1 Is
Multiple Choice
Account Title
Interest Expense
Premium on Bonds Payable
Cash
Account Title
Interest Expense
Premium on Bonds Payable
Cash
Account Title
Interest Expense
Premium on Bonds Payable
Cash
Account Title
Interest Expense
Cash
Debit
3,449
51
Debit
3,349
51
Debit
3,551
Debit
3,500
Credit
3,500
Credit
3,400
Credit
51
3,500
Credit
3,500
![The following Information is drawn from the income statements of East Company and West Company.
Income before interest and taxes (EBIT)
Interest expense
Income before taxes
Income tax expense for East $48,000 x 0.30
Income tax expense for West $40,000 x 0.30
Net Income
All other things being equal,
Multiple Choice
East
$ 60,000
(12,000)
48,000
(14,400)
$ 33,600
West
$ 40,000
(10,000)
40,000
(12,000)
$ 28,000
East Company is more likely to be able to make its legally required Interest payments than West Company.
East Company is less likely to be able to make its legally required Interest payments than West Company.
The answer cannot be determined using the Information provided.
East Company and West Company are equally able to make their legally required interest payments.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa10265c9-c446-4f5e-88cf-d8226c0fdc6d%2F4e45325d-76db-4fc2-ae66-a6bdb17288b8%2Fv2t1fu_processed.png&w=3840&q=75)
Transcribed Image Text:The following Information is drawn from the income statements of East Company and West Company.
Income before interest and taxes (EBIT)
Interest expense
Income before taxes
Income tax expense for East $48,000 x 0.30
Income tax expense for West $40,000 x 0.30
Net Income
All other things being equal,
Multiple Choice
East
$ 60,000
(12,000)
48,000
(14,400)
$ 33,600
West
$ 40,000
(10,000)
40,000
(12,000)
$ 28,000
East Company is more likely to be able to make its legally required Interest payments than West Company.
East Company is less likely to be able to make its legally required Interest payments than West Company.
The answer cannot be determined using the Information provided.
East Company and West Company are equally able to make their legally required interest payments.
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