On January 1, Year 1, Gordon Corporation issued bonds with a face value of $70,000, a stated interest rate of 6%, and a 5-year term to maturity. The bonds were issued at 98. Interest is payable in cash on December 31 each year. Gordon uses the straight-line method to amortize bond discounts and premiums.Which of the following shows the effect of the bond issuance on the financial statements?| Balance Sheet | Income Statement ||----------------------------|-------------------------------------------------|| Assets = Liabilities + | Revenue – Expense = Net Income | Statement of Cash Flows || Stockholders’ Equity | || A. 70,000 = 70,000 + n/a | n/a – n/a = n/a | 70,000 FA || B. 68,600 = 68,600 + n/a | n/a – n/a = n/a | 68,600 FA || C. 68,600 = 70,000 + (1,400)| n/a – 1,400 = (1,400) | 68,600 FA || D. 70,000 = 68,600 + 1,400 | n/a – (1,400) = 1,400 | 70,000 FA |**Multiple Choice**- Option D- Option A- Option B- Option CThis text is typically laid out in a tabular format for students to analyze how bond issuance impacts financial statements. Various options show different accounting treatments in terms of balance sheet, income statement, and cash flows, helping learners identify the correct entry based on given conditions.

Bonds are long term sources of finance for the companies but when bonds are issued they may be issued above or below the par value of bond. If the interest rate is higher than they are issued at discount and discount is cost to company.Option 4 is correct Option C is correct Assets-68600=liability -70000+Equity (1400 decrease) Revenue n/a Explanation Face value of bond=$70000 Cash received from bond=0.98 x 70000=$68600 Cash received from selling bond is asset that is $68600. Now bonds are paid on the face value so $70000 is liability. Decrease in equity=70000-68600=$1400 Decrease in equity=$1400 Statement of cash flow will show $68600. So statement C is correct.

Business

Accounting

January 1 Year 1, Gordon Corporation issued bonds with a face value of $70,000, a stated rate of interest of 6%, and a 5-year term to maturity. The bonds were issued each year. Gordon uses the straight-line method to amortize bond discounts and premiums. hich of the following shows the effect of the bond issuance on the financial statements? Balance Sheet Assets = Liabilities + . 70,000 . . . 68,600 68,600 70,000 Multiple Choice 70,000 68,600 70,000 68,600 Option D Stockholders' Equity n/a n/a (1,400) 1,400 Revenue n/a n/a n/a n/a Income Statement Expense = Net Income n/a n/a 1,400 (1,400) n/a n/a (1,400) 1,400 Statement of Cash Flows 70,000 FA 68,600 FA 68,600 FA 70,000 FA

January 1 Year 1, Gordon Corporation issued bonds with a face value of $70,000, a stated rate of interest of 6%, and a 5-year term to maturity. The bonds were issued each year. Gordon uses the straight-line method to amortize bond discounts and premiums. hich of the following shows the effect of the bond issuance on the financial statements? Balance Sheet Assets = Liabilities + . 70,000 . . . 68,600 68,600 70,000 Multiple Choice 70,000 68,600 70,000 68,600 Option D Stockholders' Equity n/a n/a (1,400) 1,400 Revenue n/a n/a n/a n/a Income Statement Expense = Net Income n/a n/a 1,400 (1,400) n/a n/a (1,400) 1,400 Statement of Cash Flows 70,000 FA 68,600 FA 68,600 FA 70,000 FA

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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