Grocery Corporation sold a $300,000, 6 percent bond issue on January 1, 2009, at a market rate

Question:

Grocery Corporation sold a $300,000, 6 percent bond issue on January 1, 2009, at a market rate of 3 percent. The bonds were dated January 1, 2009, with interest to be paid each December 31; they mature in 10 years. The company uses the straight-line method to amortize any discount or premium).

Required:

1. How are the financial statements affected by the issuance of the bonds? Describe the impact on the debt-to-equity and times interest earned ratios, if any.

2. How are the financial statements affected by the payment of interest on December 31? Describe the impact on the debt-to-equity and times interest earned ratios, if any.

3. Show how the bond interest expense and the bonds payable should be reported on the December 31, 2009, annual financial statements.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...