Bond Transactions

Brand Company issued $1,190,000 face value, eight-year, 15% bonds on April 1, 2017, when the market rate of interest was 15%. Interest payments are due every October 1 and April 1. Brand uses a calendar year-end.

Required:

1. Identify and analyze the effect of the issuance of the bonds on April 1, 2017.

Activity	FinancingInvestingInvesting and FinancingOperating
Accounts	Cash Increase, Bonds Payable IncreaseCash Increase, Bonds Payable DecreaseCash Decrease, Bonds Payable IncreaseCash Decrease, Bonds Payable Decrease
Statement(s)	Balance Sheet onlyBalance Sheet and Income StatementIncome Statement only

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.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

Bonds PayableBond RevenueCashDiscount on Bonds PayablePremium on Bonds PayableNo Entry

fill in the blank d2fa77f6d07102c_2

Bonds PayableBond RevenueCashDiscount on Bonds PayableNotes PayableNo Entry

fill in the blank d2fa77f6d07102c_4

fill in the blank d2fa77f6d07102c_5

Bonds PayableBond RevenueCashDiscount on Bonds PayableNotes PayableNo Entry

fill in the blank d2fa77f6d07102c_7

Bonds PayableBond RevenueCashDiscount on Bonds PayablePremium on Bonds PayableNo Entry

fill in the blank d2fa77f6d07102c_9

fill in the blank d2fa77f6d07102c_10

2. Identify and analyze the effect of the interest payment on October 1, 2017.

Activity	FinancingInvestingInvesting and FinancingOperating
Accounts	Cash Increase, Interest Expense IncreaseCash Increase, Interest Expense DecreaseCash Decrease, Interest Expense IncreaseCash Decrease, Interest Expense Decrease
Statement(s)	Balance Sheet onlyBalance Sheet and Income StatementIncome Statement only

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.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

Bonds PayableCashDiscount on Bonds PayableInterest ExpensePremium on Bonds payableNo Entry

fill in the blank a66baffa8fdd033_2

CashDiscount on Bonds PayableInterest PayableInterest ExpensePremium on Bonds payableNo Entry

fill in the blank a66baffa8fdd033_4

fill in the blank a66baffa8fdd033_5

Bonds PayableCashDiscount on Bonds PayableInterest ExpensePremium on Bonds payableNo Entry

fill in the blank a66baffa8fdd033_7

CashDiscount on Bonds PayableInterest PayableInterest ExpensePremium on Bonds payableNo Entry

fill in the blank a66baffa8fdd033_9

fill in the blank a66baffa8fdd033_10

3. On December 31, Brand should

record an accrued liability to recognize the interest expense incurred but not paid from October 1 to December 31.not record any expense related to the interest on the loan since it is not due until April 1st of the following year.record a cash payment of three months' of interest to reflect interest for the period from October 1 to December 31.record an accrued liability of six months' interest from October 1 until April 1st, and as a result, it will pay half of this amount on April 1st with the other half being paid on December 31st.

4. Determine the total cash inflows and outflows that occurred on the bonds over the eight-year life.

Total cash inflows	$fill in the blank 40563dfc7028027_1
Total cash outflows	$fill in the blank 40563dfc7028027_2