15. On September 1, 2017, a comp any issued a $50,000 6 month, 9% note payable t

Question

15. On September 1, 2017, a comp any issued a $50,000 6 month, 9% note payable to purchase a piece of equipment. The company pays the note with interest at the maturity date, March 1, 2018. The entries to record the payment at the maturity date of the note include a: A. debit to Interest Expense for $750. B. credit to Interest Payable for S1,500. C. debit to Interest Expense for $2,250 D. debit to Interest Expense for $1,500. E. credit to Notes Payable for $50,000. 16. On December 1, 2017, Darin Company received $3,600 from Berke Company for rent of an office owned by Darin Company. The payment covers rent for the period from December 1,2017 through March 31, 2018. Darin Company recorded this as Unearned Rent Revenue when it was received on December 1. The adjusting journal entry on December 31 would include a: A. debit to Cash of $3,600. B. credit to Uneamed Rent Revenue of $900. C. credit to Rent Revenue of $3,600. D. credit to Rent Revenue of $900. E. debit to Unearned Rent Revenue of $3,600. 17. Carlson Inc. issues 20-year bonds with a maturity value of $200,000. If the bonds are issued at a discount, A. the stated interest rate is greater than the market interest rate B. C. D. the stated interest rate and the market interest rate are the same. the market interest rate is greater than the stated interest rate. no relationship exists between the stated interest rate and the market interest rate. 18. On the balance sheet, the account Discount on Bonds Payable is: A classified as a stockholders' equity account. B. classified as an asset account C. added to Bonds Payable. D. classified as a contra-liability account. E. reflected as a long-term liability account.

Explanation / Answer

Solution - 15:

Journal Entry for payment of note at maturity date:

Note Payable A/c                                             Dr           $50,000

Interest Expense A/c Dr           $2,250

   To Bank A/c Cr                            $52,250

Hence entry to record payment will include debit on interest expense for $2,250

Solution - 16:

Journal Entry at the time of receiving rent:

Cash A/c                                                              Dr           $3,600

   To Unearned Rent A/c Cr                           $3,600

Adjustment Entry at the end of accounting period:

Unearned Rent A/c                                         Dr           $900

   To Rent Revenue A/c Cr                            $900

Hence adjustment entry to will include credit to rent revenue for $900

Solution - 17:

If bonds are issued at a discount, it means market interest rate is greater than stated rate of interest. That’s why bond are issued at discount.

Solution – 18:

Discount on bond payable is a contra liability account that reports the amount of unamortized discount associated with bonds that are outstanding. The discount on bonds payable originates when bonds are issued for less than the bond's face or maturity amount. The debit balance in this account will be amortized to bond interest expense over the life of the bonds and results in more interest expense than interest paid.

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