Assuming no adjusting journal entries have been made,the journal entry to record the cash interest payment on the due date for bonds issued at a discount results in which of the following?
A)An increase in expenses and a decrease in liabilities.
B)An increase in expenses and an increase in liabilities.
C)A decrease in both liabilities and stockholders' equity.
D)A decrease in both assets and liabilities.

Question

Quizplus · Accepted Answer

When a company makes a cash interest payment to bondholders, it results in an increase in expenses (interest expense) because the company is paying interest on its debt. The payment also results in an increase in liabilities (bonds payable) because the company is reducing its obligation to pay back the borrowed funds. Since the bonds were issued at a discount, the amount of the cash interest payment will exceed the amount of interest expense recognized in the accounting records, which means that the discount on the bonds will also decrease. However, this is not reflected in the journal entry for the cash interest payment.

Assuming No Adjusting Journal Entries Have Been Made,the Journal Entry