Spokane Company called in bonds at a price that was above the carrying value of the bond liability.Which of the following shows how this event will affect the elements of the financial statements?

A)Option A
B)Option B
C)Option C
D)Option D

Question

Spokane Company called in bonds at a price that was above the carrying value of the bond liability.Which of the following shows how this event will affect the elements of the financial statements?

A)Option A 
B)Option B 
C)Option C 
D)Option D

Quizplus · Accepted Answer

If bonds are called at a price above the carrying value of the bond liability,the difference is the call premium.Calling the bonds decreases assets (cash)by the amount of the call price,decreases liabilities (bonds payable plus any discount or premium remaining)by the amount of the carrying value of the bonds,and decreases stockholders' equity (retained earnings).It increases expenses (loss on bond redemption)by the amount of the call premium,which decreases net income.The cash outflow is classified as a financing activity on the statement of cash flows.

Spokane Company Called in Bonds at a Price That Was