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 dollar amounts. (Note that "Not Affected" means that the event does not affect that element of the financial statements or the event causes an increase in that element that is offset by a decrease in the same element.)Increase = IDecrease = DNot Affected = NAOn December 31, Year 1, Briand Co. paid cash and recognized interest expense on bonds it had issued at 98 on January 1, Year 1. The company uses the effective interest method to amortize bond discounts and premiums. AssetsLiabilitiesEquityRevenuesExpensesNet IncomeStmt of Cash Flows???????
What will be an ideal response?
(D) (I) (D) (NA) (I) (D) (D)
The cash payment and recognition of interest expense decreases assets (cash), increases the carrying value of the bond liability (through a decrease in the bond discount), and decreases stockholders' equity (retained earnings). It increases expenses (interest expense), which decreases net income. The cash payment for interest is reported as a cash outflow in operating activities on the statement of cash flows.
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