Question
Bond Transactions Brand Company issued $1,320,000 face value, eight-year, 8% bonds on April 1, 2017, when the market rate of interest was 8%. Interest payments
Bond Transactions
Brand Company issued $1,320,000 face value, eight-year, 8% bonds on April 1, 2017, when the market rate of interest was 8%. Interest payments are due every October 1 and April 1. Brand uses a calendar year-end.
Required:
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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 |
Question Content Area
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 a5d8d2f4a027069_2 | Bonds PayableBond RevenueCashDiscount on Bonds PayableNotes PayableNo Entry | fill in the blank a5d8d2f4a027069_4 | fill in the blank a5d8d2f4a027069_5 | Bonds PayableBond RevenueCashDiscount on Bonds PayableNotes PayableNo Entry | fill in the blank a5d8d2f4a027069_7 | Bonds PayableBond RevenueCashDiscount on Bonds PayablePremium on Bonds PayableNo Entry | fill in the blank a5d8d2f4a027069_9 | fill in the blank a5d8d2f4a027069_10 |
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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 |
Question Content Area
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 81cdb106c063fba_2 | CashDiscount on Bonds PayableInterest PayableInterest ExpensePremium on Bonds payableNo Entry | fill in the blank 81cdb106c063fba_4 | fill in the blank 81cdb106c063fba_5 | Bonds PayableCashDiscount on Bonds PayableInterest ExpensePremium on Bonds payableNo Entry | fill in the blank 81cdb106c063fba_7 | CashDiscount on Bonds PayableInterest PayableInterest ExpensePremium on Bonds payableNo Entry | fill in the blank 81cdb106c063fba_9 | fill in the blank 81cdb106c063fba_10 |
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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.
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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 8608edfd8025fc4_1 |
Total cash outflows | $fill in the blank 8608edfd8025fc4_2 |
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