Megginson, Inc. issued a five-year corporate bond of $300,000 with a 5% interest rate for $290,000. What effect would the bond issuance have on Megginson, Inc.'s accounting equation?
A) Increase assets and liabilities.
B) Increase and decrease assets.
C) Increase assets and stockholders' equity.
D) Increase and decrease stockholders' equity.
Answer: A
Bonds payable should be reported as a long-term liability in the balance sheet at the:
A) Face value.
B) Current bond market price.
C) Carrying value.
D) Face value less accrued interest since the last interest payment date.
Answer: C
The cash interest payment each period is calculated as the:
A) Face amount times the stated interest rate.
B) Face amount times the market interest rate.
C) Carrying value times the market interest rate.
D) Carrying value times the stated interest rate.
Answer: A
