Question 5

On January 1, Parson Freight Company issues 8.5%, 10-year bonds with a par value of $2,800,000. The bonds pay interest semiannually. The market rate of interest is 9.5% and the bond selling price was $2,609,737. The bond issuance should be recorded as:

Multiple Choice

• Debit Cash $2,800,000; credit Bonds Payable $2,609,737; credit Discount on Bonds Payable $190,263.

• Debit Cash $2,609,737; debit Interest Expense $190,263; credit Bonds Payable $2,800,000.

• Debit Cash $2,800,000; credit Bonds Payable $2,800,000.

• Debit Cash $2,609,737; debit Discount on Bonds Payable $190,263; credit Bonds Payable $2,800,000.

• Debit Cash $2,609,737; credit Bonds Payable $2,609,737.

On January 1 of Year 1, Congo Express Airways issued $3,600,000 of 7%, bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $3,306,000 and the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized using the straight-line method at a rate of $10,500 every 6 months. The life of these bonds is:

Multiple Choice

• 9 years.

• 31 years

• 14 years.

• 34 years.

• 28 years.