Question
On January 1, Year 1, Residence Company issued bonds with a $70,000 face value. The bonds were issued at 104 resulting in a 4% premium.
On January 1, Year 1, Residence Company issued bonds with a $70,000 face value. The bonds were issued at 104 resulting in a 4% premium. They had a 20-year term and a stated rate of interest of 7%, which is paid at the end of each year. The company amortizes the premium on a straight-line basis. Which of the following shows how the recognition of interest expense will affect Residences financial statements on December 31, Year 1?
| Balance Sheet | Income Statement | Statement of Cash Flows | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Assets | = | Carrying Value Bond Liability | + | Equity | Revenues | Expenses | = | Net Income | |||
| A. | $(4,760) | = | NA | + | $(4,760) | NA | $4,760 | = | $(4,760) | $(4,760) OA | |
| B. | $(4,900) | = | $(140) | + | $(4,760) | NA | $4,760 | = | $(4,760) | $(4,900) OA | |
| C. | $(4,900) | = | NA | + | $(4,900) | NA | $4,900 | = | $(4,900) | $(4,900) OA | |
| D. | $(4,760) | = | $140 | + | $(4,900) | NA | $4,760 | = | $(4,760) | $(4,760) OA | |
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Accounting Information System
Authors: James A. Hall
7th Edition
978-1439078570, 1439078572
