question archive 1) ABC Company issues a $100,000 bond on January 3 of the current year
1) ABC Company issues a $100,000 bond on January 3 of the current year
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1) ABC Company issues a $100,000 bond on January 3 of the current year. The stated (contact) rate on the bond is 12%. At the date of issue, the market rate is 10%. As a result, the bond will be issued at:
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a premium |
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a discount |
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an additional paid-in capital |
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par value |
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a dividend |
2) ABC Corp. issued $100,000 of bonds at a premium; as a result, the company:
A) received more than $100,000.
B) received less than $100,000.
C) received $100,000.
D) will pay the bondholders more money on the maturity date than it received on the issue date.
3) Allowance for Doubtful Accounts has an unadjusted balance of $400 at the end of the vear, and uncollectible accounts expense is estimated at 1% of net sales. If net sales are $300,000, compute the amount of the adjustment to record the provision for doubtful accounts.
a. $3.400
b. $2,600
c. $400
d. $3.000
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Answer:
1)
A discount
Explanation:
When the bonds coupon rate is more than the actual market interest rate it'll happen that the bond will be issued at discount. The companies wants to get more buyers so that it'll declare more interest rate than the original market rate but this extra interest will be sett off by way of issuing bonds at discounted price so that it can redeem the same at a lower price than compared to par value.
2)
option A
as the bonds issued at premium they receive cash more than $100,000
3)
| Net Sale | 300,000 |
| Uncollectible amount of sale | 1% |
| Estimated provision | 3,000 |
| Balance already in the provision | (400) |
| Adjustment to provision account | 2,600 |
| So option b is correct | |
