Chapter 7, Problem 35P

Problem 7-35 Straight-line amortization of a bond discount

Pine Land Co. was formed when it acquired cash from the issue of common stock. The company then issued bonds at a premium on January 1, 2018. Interest is payable annually on December 31 of each year, beginning December 31, 2018. On January 2, 2018, Pine Land Co. purchased a piece of land and leased it for an annual rental fee. The rent is received annually on December 31, beginning December 31, 2018. At the end of the eight-year period (December 31, 2025), the land was sold at a gain, and the bonds were paid off. A summary of the transactions for each year follows.

2018

1. 1. Acquired cash from the issue of common stock.
2. 2. Issued eight-year bonds.
3. 3. Purchased land.
4. 4. Received land rental income.
5. 5. Recognized interest expense including the straight-line amortization of the premium and made the cash payment for interest on December 31.

2019–2024

6.    Received land rental income.

7.     Recognized interest expense including the straight-line amortization of the premium and made the cash payment for interest on December 31.

2025

8.    Sold land at a gain.

9.    Retired bonds at face value.

Required

Identify each of these nine transactions as asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE). Explain how each event affects assets, liabilities, equity, net income, and cash flow by placing a + for increase, − for decrease, or NA for not affected under each of the categories.