The Gordon Corporation issued $70,000 of 6%, 5-year bonds on January 1, Year 1 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 first interest payment and amortization of premium or discount?

Question

The Gordon Corporation issued $70,000 of 6%, 5-year bonds on January 1, Year 1 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 first interest payment and amortization of premium or discount?
The Gordon Corporation issued $70,000 of 6%, 5-year bonds on January 1, Year 1 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 first interest payment and amortization of premium or discount? A) Choice A B) Choice B C) Choice C D) Choice D

Quizplus · Accepted Answer

$70,000 × 6% = $4,200 interest payment; $70,000 × 2% = $1,400 discount; $1,400 ÷ 5 = $280 annual amortization of discount; The event will decrease assets (cash) by $4,200, increase liabilities (decrease discount on bonds payable) by $280, and increase expenses (interest expense) by $4,480. The payment is reported as a cash outflow for operating activities.

The Gordon Corporation Issued $70,000 of 6%, 5-Year Bonds on January