Marvin Company issues $125,000 of bonds at face value on January 1. The bonds carry a 6% annual stated rate of interest. Interest is payable in cash on December 31 of each year. Which of the following shows theeffect of the first interest payment on the financial statements?Balance SheetLiabilities +(7,500)n/a(7,500)n/aAssetsA. (7,500)B. (7,500)C. (7,500)D. (7,500)Multiple ChoiceOOOOOption DOption BOption COption AStockholders'Equityn/a(7,500)n/a(7,500)Revenuen/an/an/an/aIncome StatementExpense = Net Incomen/an/a7,500(7,500)n/an/a7,500(7,500)Statement of Cash Flows(7,500) FA(7,500) FA(7,500) OA(7,500) OA

ANSWER:- (1) Option D (7,500)=NA+(7,500) NA-7,500=(7,500) (7,500)OA is correct Explanation:- Amount of interest paid = $ 125000 x 6% = $ 7500 · On 31 Dec: >Cash interest will be paid for $ 7500/ >Cash (Asset) will decrease by $ 7500, and >Interest expense will increase by $ 7500, leading to decrease in Net income and equity. Asset = $ (7500) Liabilities = NA Equity = $ (7500) Revenues = NA Expenses = $ 7500 Net Income = $(7500) Cash flow = $(7500) OAWRONG OPTIONS:- Assets = Liabilities + Equity Revenue - Expenses = Net income Cash flow A (7500) (7500) n/a n/a n/a n/a (7500)FA B (7500) n/a (7500) n/a 7500 (7500) (7500)FA C (7500) (7500) n/a n/a n/a n/a (7500)OA Correct information is Asset = $ (7500) Liabilities = NA Equity = $ (7500) Revenues = NA Expenses = $ 7500 Net Income = $(7500) Cash flow = $(7500) OA Explanation For A:- There is no liabilities in given question and equity is (7500) not shown in option A . Expenses and income not shown in option A Explanation For B:- Cash flows is (7500) OA (operating activities) but in given option Cash flows is (7500) FA (financial activities) so it is wrong Explanation For C Equity (7500) , expenses 7500 ,net income (7500) are not shown in this option.

Business

Accounting

Marvin Company issues $125,000 of bonds at face value on January 1. The bonds carry a 6% annual stated rate of interest. Interest is payable in cash on December 31 of each year. Which of the following shows the effect of the first interest payment on the financial statements? Balance Sheet Liabilities + (7,500) Assets A. (7,500) B. (7,500) C. (7,500) D. (7,500) Multiple Choice O OOO n/a (7,500) n/a Option D Option B Option C Option A Stockholders' Equity n/a (7,500) n/a (7,500) Revenue n/a n/a n/a n/a Income Statement - Expense = Net Income n/a 7,500 n/a 7,500 n/a (7,500) n/a (7,500) Statement of Cash Flows (7,500) FA (7,500) FA (7,500) OA (7,500) OA

Marvin Company issues $125,000 of bonds at face value on January 1. The bonds carry a 6% annual stated rate of interest. Interest is payable in cash on December 31 of each year. Which of the following shows the effect of the first interest payment on the financial statements? Balance Sheet Liabilities + (7,500) Assets A. (7,500) B. (7,500) C. (7,500) D. (7,500) Multiple Choice O OOO n/a (7,500) n/a Option D Option B Option C Option A Stockholders' Equity n/a (7,500) n/a (7,500) Revenue n/a n/a n/a n/a Income Statement - Expense = Net Income n/a 7,500 n/a 7,500 n/a (7,500) n/a (7,500) Statement of Cash Flows (7,500) FA (7,500) FA (7,500) OA (7,500) OA

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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