Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. Enter only one letter for each element.Increase = IDecrease = DNo Effect = NOn January 1, Year 1, Eagle Co. issued $100,000 of bonds payable at the face value. When the bonds matured on December 31, Year 6, Eagle used cash to repay the bond principal and the interest for one year, which had not been previously accrued. Indicate the effects of the December 31, Year 6 payment.AssetsLiabilitiesEquityRevenuesExpensesNetIncomeCash Flow? ?????

Question

What will be an ideal response?

Answer 1

(D) (D) (D) (N) (I) (D) (D)
Repayment of the bond at maturity decreases assets (cash) by the face value of the bond, plus the year's interest, and decreases liabilities (bonds payable) by the face value of the bond. It also increases expenses (interest expense) by the amount of the interest payment, which decreases net income and equity. The repayment of principal is reported as a cash outflow for financing activities and the interest payment is reported as a cash outflow for operating activities on the statement of cash flows.