5.On January 1, 2015 Canadian Flag Inc. issues 10 percent, semi-annual coupon bonds which mature five years from the issuance date. Interest of 5 percent of the face value of $100,000 is payable on January 1 and July 1 each year. The effective interest rate is 12%.

What is the journal entry recorded when the bonds are retired at maturity date?

Dr. Bonds Payable $100,000 and Dr. Discount on Bonds Payable $7,360 and Cr. Cash $107,360

Dr. Bonds Payable $92,640 and Cr. Cash $92,640

Dr. Bonds Payable $100,000 and Cr. Cash $100,000

Dr. Bonds Payable $92,640 and Dr. Discount on Bonds Payable $7,360 and Cr. Cash $100,000

Dr. Bonds Payable and Dr. Discount on Bonds Payable and Cr. Cash but for different values than those mentioned in the other alternatives

10.Which method involves the larger adjustment in the Cash Flow Statement (prepared under the indirect method) to net income in deriving funds provided by operations in the first year for a bond issued at less than par value

declining balance method of accounting for interest expense on bonds

effective interest method of accounting for interest expense on bonds

All the three statements about bonds are correct

None of the other alternatives are correct

straight-line method of accounting for interest expense on bonds