Dixon Construction, Inc. issued $300,000 of 10-year, 6 percent bonds on July 1, Year 1, at 96.

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Dixon Construction, Inc. issued $300,000 of 10-year, 6 percent bonds on July 1, Year 1, at 96. Interest is payable in cash semiannually on June 30 and December 31. Dixon uses the straight-line method of amortization.


Required
a. Use a financial statements model like the one shown next to demonstrate how (1) the January 1, Year 2, bond issue and (2) the December 31, Year 2, recognition of interest expense, including the amortization of the premium and the cash payment, affects the company’s financial statements. Use + for increase, − for decrease, and NA for not affected.

Balance Sheet Income Statement Statement of Cash Event No. Rev. - Exp. Assets = Llab. + Stk. Equlty Net Inc. Flows 1.


b. Determine the carrying value (face value less discount or plus premium) of the bond liability as of December 31, Year 1.
c. Determine the amount of interest expense reported on the Year 1 income statement.
d. Determine the carrying value of the bond liability as of December 31, Year 2.
e. Determine the amount of interest expense reported on the Year 2 income statement.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
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Related Book For  book-img-for-question

Introductory Financial Accounting for Business

ISBN: 978-1260299441

1st edition

Authors: Thomas Edmonds, Christopher Edmonds

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