The Barden Company called in bonds at a price that was above the carrying value of the bond liability. Which of the following choices accurately reflects how this event will affect Barden's financial statements?

Question

Quizplus · Accepted Answer

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

The Barden Company Called in Bonds at a Price That