On January 1, 2014, Potter Corporation called the bonds payable at a price of $2,545. Which of the following answers shows the effect of this transaction on the financial statements?

Question

Quizplus · Accepted Answer

Carrying value of the bonds payable on 1/1/14: $2,500 + $40 remaining premium = $2,540; With a call price of $2,545, Potter will recognize a $5 loss on bond redemption. The event will decrease assets (cash) by $2,545, decrease liabilities (bonds payable and premium on bonds payable), and increase expenses (loss on bond redemption), which decreases net income and equity. It is reported as a cash outflow for financing activities on the statement of cash flows.

On January 1, 2014, Potter Corporation Called the Bonds Payable