On January 1, Year 1 Residence Company issued bonds with a $50,000 face value. The bonds were issued at 96 resulting in a 4% discount. They had a 20 year term and a stated rate of interest of 7%. The company amortizes the discount on a straight-line basis. Which of the following shows how the recognition of interest expense will affect Residence?s financial statements on December 31, Year 1?

(a)

(b)

(c)

(d)

Balance Sheet Carrying Value Assets = Bond Liability + Equity (3,500) 100 (3,600) Income Statement Rev. Exp. = Net Inc. 3,600 (3,600) Statement of Cash Flows (3,500) OA Balance Sheet Carrying Value Assets = Bond Liability + Equity (3,600) (3,600) Rev. Income Statement Exp. = Net Inc. 3,600 (3,600) Statement of Cash Flows (3,600) OA Balance Sheet Carrying Value Assets = Bond Liability + Equity (3,500) (3,500) Income Statement Rev. Exp. - Net Inc. 3,500 (3,500) Statement of Cash Flows (3,500) OA Balance Sheet Carrying Value Assets = Bond Liability + Equity (3,600) 100 (3,500) Rev. Income Statement Exp. = Net Inc. 3,600 (3,600) Statement of Cash Flows (3,600) OA