Answer:
The impact on the financial statement is summarized as follows
A net cash position of 50,000 -3500 = 35,000
Bond liability = 50,000
An increase in expense of 3,500 which implies that profit would reduce by $3,500
Explanation:
The impact on Residence's financial statements would be seen in two forms;
Issuance of bonds
The effect of the debt issuance would be on cash asset and long-term liabilities. This is described below in the accounting entries:
Debit Credit
Cash $50,000
Bond liabilities $50,000
Being the issuance of bonds
Interest payment
The interest payment on the bonds equals
Coupon rate × par Value ×
interest payment = 7%× 50,000 = $3,500
The accounting entry to record the interest payment each time payment is made would be:
Debit Credit
Bond Interest Expense $3,500
Cash $3,500
Being interest payment on bonds
The impact on the financial statements is summarized as follows
A net cash position of 50,000 -3500 = 35,000
Bond liability = 50,000
An increase in expense of 3,500 which implies that profit would reduce by $3,500
