Question

Samson Enterprises issued a ten-year, $20 million bond with a 10% interest rate for $19,500,000. The entry to record the bond issuance would have what effect on the financial statements? Increase assets. Increase liabilities. Increase stockholders' equity. Increase assets and liabilities.

Answer 1

Answer:

Assets: increase by 19,500,000

Liablities: increase by 19,500,000

Equity: no effect

Explanation:

cash proceeds:  19,500,000

      face value:  20,000,000

   discount              500,000

As the bonds issued were sold below par there is a discount.

the entry will be:

cash              19,500,000

discount on BP 500,000

     bonds payable           20,000,000

This will generate an increase on assets for 19,500,000

and increase liablities for 19,500,000

The issuance of bonds do not generate revenues or expenses. So the equity remains unchanged-