The debt to assets ratio will be affected by the issuance of the bonds when interest expenses are paid semiannually as the cash (assets) will reduce with each subsequent payment in comparison with the debts.
Data and Calculations:
Bonds face value = $300,000
Coupon interest rate = 10%
Maturity period = 10 years
Effect:
Cash $300,000 Bonds Payable $300,000
Interest Expense $15,000 Cash $15,000
Semi-annual interest payments = $15,000 ($300,000 x 5%)
Thus, when the bonds are issued or repaid, the debt to assets ratio will not be affected, but it will be impacted by the payment of interest expense.
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