Lecture Video Assessment 10-23 [LO 3B] On January 1, Year 1 Residence Companyiss
ID: 2581754 • Letter: L
Question
Lecture Video Assessment 10-23 [LO 3B] On January 1, Year 1 Residence Companyissued bonds with a $50,000 face value. The bonds were issued at face value. They had a 20 year term and a stated rate of interest of 7% which of the following shows how the bond issue will affectResidence's financial statements on January 1, Year 1? Statement of Cash Flows (50,000) IA Balance Sheet Income Statement Assets Liab. + Equity NA Rev. Exp Net Inc. NA NA NA NA NA Statement of Cash Flows (50,000) FA Balance Sheet Income Statement Assets = Liab. + Equity NA Rev. . Exp. = Net Inc. NA NA NA NA NA Statement of Cash Flows 50,000 FA Balance Sheet Income Statement Assets= Liab. +Equity 50,000 Rev.. Exp.= Net Inc. NA NA NA NA 50,000 Statement of Cash Flows (50,000) IA Income Statement Balance Sheet Assetsab + Equity 50,000 Rev. . NA Exp NA Net Inc. NA NA (50,000Explanation / Answer
Ans :
10-23 ) - option - c . Reason - A bond is a liability companies use when a large amount of cash is needed. Rather than go to a bank or other lender, a company will issue bonds and sell them to the public. Therefore Bond is shown in the Liability side of balance sheet. Plus asset of 50,000 i.e Cash is also create at the same time.
10-24 ) - option - d. Reason - Bond value without interest value is recorded in the books of accounts. Cash account is debited and Bonds payable is credited.
10-25 ) - option - c Reason - Interest expense is an operating item and hence shown in operating activites section in cashflow. Asset is decreased and liability is increased.
10-26) - option - a Reason - Interest is a cost of the bond, therefore it is an expense. Interest expense is the other account. Cash is decreasing and the expense is increasing.
10-27) - option - c Reason - Cash Paid for Interest - If the cash flow statement, or statement of cash flows, is prepared using the direct method, the amount of interest paid should appear as a separate line within the cash flows from operating activities. The cash payments and cash receipts of principal on a note payable are reported in the financing activities section of the cash flow statement.
10-29) - option - d - while paying off bond, Cash account is credited only at bond value as cash is going out and liabililty is getting reduced so bonds payable is getting debited.
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