King Company experienced an accounting event that affected its financial statements as indicated below: Which of the following accounting events could have caused these effects on King's statements?
A) Repaid a bond issued at a discount.
B) Borrowed funds through a line-of-credit.
C) Made a payment on an installment loan.
D) Issued a bond at a discount.

Question

King Company experienced an accounting event that affected its financial statements as indicated below:  Which of the following accounting events could have caused these effects on King's statements?
A) Repaid a bond issued at a discount. 
B) Borrowed funds through a line-of-credit. 
C) Made a payment on an installment loan. 
D) Issued a bond at a discount.

Quizplus · Accepted Answer

Making a payment on an installment loan will decrease assets (cash), decrease liabilities (installment notes payable) for the amount of the principal reduction, and increase expenses (interest expense) for the amount of interest expense, which decreases net income and equity. The principal reduction is reported as a cash outflow for financing activities and the interest portion of the payment is reported as a cash outflow for operating activities.

King Company Experienced an Accounting Event That Affected Its Financial