WGU D104 Intermediate Accounting II Units 4-6 Exam Solved 100% Correct

WGU D104 Intermediate Accounting II Units 4-6 Exam Solved 100% Correct
Question : A company issued a 5-year note payable in the
amount of $15,000. The note bears the market interest rate of
5%. At Year 3, the market rate of interest is 3%. Which
journal entry is appropriate for recording interest at the end of
the third year? A. Debit Interest Expense for $450; credit
Cash for $450 B. Debit Interest Expense for $750; credit
Discount on Note Payable for $300; credit Cash for $450 C.
Debit Interest Expense for $750; credit Cash for $750 D.
Debit Interest Expense for $450; debit Premium on Note
Payable for $300; credit Cash for $750
CORRECT ANSWER: C. Debit Interest Expense for $750;
credit Cash for
750
750
750 = $15,000 x 0.05. When the stated and effective interest
rates are the same, annual interest is calculated by multiplying
the face of the note times the interest rate. Interest rates do not
change in subsequent years if the market rate changes.

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