On January 1, Year 1, Pierce Corporation issued $25,000 in 8%, 5-year bonds payable at 102. Interest payments are due each December 31. Pierce uses the straight-line method of amortization. Which of the following answers shows the effect of the bond issuance on January 1, Year 1?

Question

Quizplus · Accepted Answer

$25,000 × 102% = $25,500 issue price; the bond issuance increases assets (cash) and liabilities (bonds payable, plus premium on bonds payable). It is reported as a cash inflow for financing activities.

On January 1, Year 1, Pierce Corporation Issued $25,000 in 8