1. Activity: a. Financing b. Investing c. Investing & Financing d. Operating

Accounts:

a. Cash Increase, Bonds Payable Increase, Discount on Bounds Payable Increase

b. Cash Increase, Bonds Payable Increase, Discount on Bounds Payable Decrease

c. Cash Decrease, Bonds Payable Increase, Discount on Bounds Payable Increase

d. Cash Decrease, Bonds Payable Increase, Discount on Bounds Payable Decrease

Assets:

a. Bonds Payable b. Cash c. Interest Expense d. Loss on Bonds e. Premium on Bonds Payable f. No entry

a. Bonds Payable b. Interest Expense c. Interest Payable d. Interest Receivable e. Premium on Bonds Payable f. No entry

Liabilities:

a. Bonds Payable b. Interest Expense c. Interest Payable d. Interest Receivable e. Premium on Bonds Payable f. No entry

a. Cash b. Discount on Bonds Payable c. Gain on Bonds d. Interest Receivable e. Prepaid Interest f. No entry

Revenues:

a. Bonds Payable b. Interest Expense c. Interest Payable d. Interest Receivable e. Premium on Bonds Payable f. No entry

a. Bonds Payable b. Interest Expense c. Interest Payable d. Interest Receivable e. Premium on Bonds Payable f. No entry

Expenses:

a. Bonds Payable b. Cash c. Interest Expense d. Loss on Bonds e. Premium on Bonds Payable f. No entry

a. Bonds Payable b. Discount on Bonds Payable c. Gain on Bonds d. Interest Receivable e. Prepaid Interest f. No entry

Liabilities:

a. Bonds Payable b. Cash c. Discount on bonds payable d. Interest payable e. Premium on Bonds Payable

a. Bonds Payable b. Cash c. Discount on bonds payable d. Interest payable e. Premium on Bonds Payable

2.

Activity:

a. Financing b. Investing c. Investing & Financing d. Operating

Accounts:

a. Cash Increase, Discount on Bonds Payable Decrease, Interest Expense Increase

b. Cash Increase, Discount on Bonds Payable Decrease, Interest Expense Decrease

c. Cash Decrease, Discount on Bonds Payable Decrease, Interest Expense Increase

d. Cash Decrease, Discount on Bonds Payable Decrease, Interest Expense Decrease

Assets:

a. Accounts Payable b. Bond Expense c. Bond Payable d. Cash e. Interest Payable f. No Entry

Liabilities:

a. Bonds Payable b. Discount on Bonds Payable c. Interest Expense d. Interest Receivable e. Premium on Bonds Payable f. No Entry

Revenues:

a. Bonds Payable b. Discount on Bonds Payable c. Interest Expense d. Interest Receivable e. Premium on Bonds Payable f. No entry

Expense:

a. Bonds Expense b. Bonds Payable c. Discount on Bonds Payable d. Interest Expense e. Premium on Bonds Payable f. No entry

Liabilities:

a. Bonds Payable b. Cash c. Discount on Bonds Payable d. Interest Payable e. Premium on Bonds Payable

a. Bonds Payable b. Cash c. Discount on Bonds Payable d. Interest Payable e. Premium on Bonds Payable

3.

a. contract interest rate b. market rate

a. contract interest rate b. market rate

Impact of a Discount Gorbachev Company sold 20-year bonds on January 1, 2017. The face value of the bonds was $100,000, and they carry a 9% stated rate of interest, which is paid on December 31 of every year. Gorbachev received $92,030 in return for the issuance of the bonds when the market rate was 10%. Any premium or discount is amortized using the effective interest method. Required: 1. Identify and analyze the effect of the sale of the bonds on January 1, 2017. Activity Accounts Statement(s) How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. Balance Sheet Income Statement Stockholders' Net Assets Liabilities Equity Revenues Expenses Income Prepare a proper balance sheet presentation for January 1, 2017 Gorbachev Company Balance Sheet (Partial) January 1, 2017 Liabilities 2. Identify and analyze the effect of the payment of interest on December 31, 2017. Activity Accounts Statement(s) How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. Round the amounts to the nearest whole dollar. Balance Sheet Income Statement Stockholders' Net Assets Liabilities + Equity Revenues Expenses Income Prepare a proper balance sheet presentation for December 31, 2017. Gorbachev Company Balance Sheet (Partial) December 31, 2017 Liabilities 3. Why it was necessary for Gorbachev to issue the bonds for only $92,030 rather than $100,000? Because the of interest was greater than the the issuance price will have to be lower than the face value