Grocery Corporation sold a $250,000, 1 1 percent bond issue on January 1, 2003, at a market rate of 8 percent. The bonds were dated January 1 , 2003, with interest to be paid each December 3 1 ; they mature 10 years from January 1, 2003.

Required: 1. How are the financial statements affected by the issuance of the bonds? Describe the impact on the debt-to-equity and times interest earned ratios, if any. 2. How are the financial statements affected by the payment of interest on December 3 1 ? Describe the impact on the debt-to-equity and times interest earned ratios, if any. 3. Show how the bond interest expense and the bonds payable should be reported on the December 31, 2003, annual financial statements.