Problem: The three typical accounting events associated with borrowing money through a bond issue are:
1. Exchanging the bonds for cash on the day of issue.
2. Making cash payments for interest expense and recording amortization when applicable.
3. Repaying the principal at maturity.
Required:
A. Assuming the bonds are issued at face value, show the effect of each of the three events on the financial statements, using a horizontal statements model like the following one. Use + for increase, - for decrease, and NA for not affected.
EXAMPLE (as metioned above)
Event | Assets = Liab. + Equity | Rev. - Exp. = Net Inc. | Cash Flow
No.
1
B. Repeat the requirements in Requirement a, but assume instead that the bonds are issued at a discount.
C. Repeat the requirements in Requirement a, but assume instead that the bonds are issued at a premium.