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 shows the effect of the interest payment and amortization on December 31, Year 1?

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$500 premium ÷ 5 years = $100 premium amortization; $25,000 × 8% = $2,000 interest payment; The event will decrease assets (cash) by $2,000, decrease liabilities (premium on bonds payable) by $100, and increase expenses by $1,900, which decreases net income and equity. It is reported as a $2,000 cash outflow for operating activities.

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