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On January 1 of this year, Denver Corporation sold bonds with a face value of $300,000 and a coupon rate of 6 percent. The bonds mature in 10 years and pay interest annually every December 31. At the time the bonds were issued, the annual market rate of interest was 6 percent. The company uses the effective-interest amortization method.
Required:
1. When the bonds were issued, did Denver’s debt-to-equity ratio increase, decrease, or stay the same?
2. At the end of the first year, when Denver recorded its first interest expense and paid cash to investors for interest, did its debt-to-equity ratio increase, decrease, or stay the same?
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