Question
1. On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds mature in 5 years. The contract
1. On January 1, a company issues bonds dated January 1 with a par value of $300,000. The bonds mature in 5 years. The contract rate is 9%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $312,177. The journal entry to record the issuance of the bond is:
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Debit Bonds Payable $300,000; debit Bond Interest Expense $12,177; credit Cash $312,177.
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Debit Cash $312,177; credit Bonds Payable $312,177.
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Debit Cash $312,177; credit Premium on Bonds Payable $12,177; credit Bonds Payable $300,000.
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Debit Cash $300,000; debit Premium on Bonds Payable $12,177; credit Bonds Payable $312,177.
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Debit Cash $312,177; credit Discount on Bonds Payable $12,177; credit Bonds Payable $300,000.
2.
During August, Boxer Company sells $356,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 5% of the selling price. The warranty liability account has a credit balance of $12,800 before adjustment. Customers returned merchandise for warranty repairs during the month that used $9,400 in parts for repairs. The entry to record the estimated warranty expense for the month is:
Multiple Choice
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Debit Warranty Expense $14,400; credit Estimated Warranty Liability $14,400.
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Debit Estimated Warranty Liability $17,800; credit Warranty Expense $17,800.
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Debit Warranty Expense $5,000; credit Estimated Warranty Liability $5,000.
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Debit Estimated Warranty Liability $9,400; credit Warranty Expense $9,400.
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Debit Warranty Expense $17,800; credit Estimated Warranty Liability $17,800.
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