Consider a Firm That Recently Issued Bonds

question 125

Essay

Consider a firm that recently issued bonds.Further, consider that the firm also set up a bond sinking fund.
Required:
a. Why would a firm create a long-term liability?
b. Why would a firm set up a bond sinking fund?
c. If a firm paid $10,000 into its bond sinking fund at the end of the year, how would this transaction be journalized?

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Definitions:

Island Arc

Curved chains of volcanic islands located at convergent tectonic plate boundaries, often formed from the subduction of an oceanic plate under another oceanic plate.

Mid-ocean Ridge

An underwater mountain range, formed by plate tectonics, that marks the site of upwelling magma creating new oceanic crust.

Caldera-forming Eruptions

Volcanic eruptions that create large, basin-shaped depressions called calderas, formed by the collapse of a volcano into emptied magma chambers.

Ash Layers

Stratified deposits resulting from the settling of volcanic ash ejected during volcanic eruptions, which can cover large areas and form distinctive markers in the geological record.