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The Gordon Corporation issued $70,000 of 6%,5-year bonds on January 1,2016 at 98.The interest payments are due on December 31 each year.Gordon uses the straight-line method of amortization.
-Which of the following answers shows the effect of the bond issuance on the financial statements?

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The issuance of bonds will result in an increase in both assets (cash) and liabilities (bonds payable) on the balance sheet. The interest expense will be recognized as an expense on the income statement, while the amortization of the bond discount will reduce the balance of bonds payable on the balance sheet over time. The statement of cash flows will show the cash received from the issuance of the bonds as financing cash inflow. Choice A is not correct because the discount on the bonds will be amortized over the life of the bonds, resulting in a decrease in the balance of bonds payable on the balance sheet over time. Choice C is not correct because the issuance of bonds will result in a financing cash inflow on the statement of cash flows, not an investing cash inflow. Choice D is not correct because the interest expense will be recognized as an expense on the income statement, not as a reduction in the balance of the bonds payable on the balance sheet. Choice E is not correct because the bond discount will be amortized over the life of the bonds using the straight-line method, not the effective interest method.

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