Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 56

Describing the Effects of a Premium Bond Issue and Interest Payment on the Financial Statements, Quick Ratio, and Times Interest Earned Ratio
Grocery Corporation received $300,328 for $250,000, 11 percent bonds issued on January 1, 2012, at a market interest rate of 8 percent. The bonds stated that interest would be paid each December 31 and that they mature on December 31, 2021.
Required:
1. Describe how the bond issuance affects the 2012 balance sheet and income statement, specifically identifying the account names and direction of effects (ignore amounts). Also, describe its impact, if any, on the quick ratio and times interest earned ratio.
2. Without doing calculations, describe how the balance sheet and income statement are affected by the recording of interest on December 31, 2012. Also, describe the impact, if any, of the December 31 interest payment on the quick ratio and times interest earned ratio.