Williams Company issued $200,000 of callable bonds at face value on January 1,2016.The bonds carried a 2% call premium.If Williams calls the bonds,this event would
A)decrease equity by $4,000.
B)decrease liabilities by $200,000.
C)decrease assets by $204,000.
D)all of these answer choices are correct.

Question

Quizplus · Accepted Answer

If the bonds are called, Williams will have to pay the face value of $200,000 plus a 2% call premium of $4,000, for a total cash outflow of $204,000. This will decrease assets by $204,000 and decrease liabilities by $200,000, therefore also decreasing equity by $4,000 (since Assets = Liabilities + Equity). So all three options are correct.

Williams Company Issued $200,000 of Callable Bonds at Face Value