1. Impact of a Premium

   Vasily Inc 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. Vasily received $108,660 in return for the issuance of the bonds when the market rate was 8%. 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.

   Balance Sheet

   Income Statement

   Stockholders'

   Net

   Assets

   =

   Liabilities

   +

   Equity

   Revenues

   Expenses

   =

   Income

   fill in the blank

   fill in the blank

   fill in the blank

   fill in the blank

   fill in the blank

   fill in the blank

   fill in the blank

   fill in the blank

   fill in the blank

   fill in the blank

   fill in the blank

   fill in the blank

   Prepare a proper balance sheet presentation for January 1, 2017.

   Vasily Inc
   Balance Sheet (Partial)
   January 1, 2017
   Liabilities
   	$fill in the blank
   	fill in the blank
   	$fill in the blank

   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. Round the amounts to the nearest whole dollar.

   Balance Sheet

   Income Statement

   Stockholders'

   Net

   Assets

   =

   Liabilities

   +

   Equity

   Revenues

   Expenses

   =

   Income

   fill in the blank

   fill in the blank

   fill in the blank

   fill in the blank

   fill in the blank

   fill in the blank

   Prepare a proper balance sheet presentation for December 31, 2017.

   Vasily Inc
   Balance Sheet (Partial)
   December 31, 2017
   Liabilities
   	$fill in the blank
   	fill in the blank
   	$fill in the blank

   3. Why the company was able to issue the bonds for $108,660 rather than for the face amount?

   The is lower than the . Therefore, investors will be willing to pay more on the basis of the future cash flows discounted at the .