Reference no: EM132456682

Q1. A bond discount should be shown on the balance sheet as:

an asset.

a contra account to bonds payable.

a reduction of stockholders' equity.

both an asset and a liability.

Q2. A debt instrument with no ready market is exchanged for property whose fair market value is currently indeterminable. When such a transaction takes place,

the present value of the debt instrument must be approximated using an imputed interest rate.

it should not be recorded on the books of either party until the fair market value of the property becomes evident.

the board of directors of the entity receiving the property should estimate a value for the property that will serve as a basis for the transaction.

the directors of both entities involved in the transaction should negotiate a value to be assigned to the property.

Q3. On January 1, 2010, Ellison Co. issued 8-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are as follows:

Present value of one for eight periods at 6% .627

Present value of one for eight periods at 8% .540

Present value of one for 16 periods at 3% .623

Present value of one for 16 periods at 4% .534

Present value of annuity for eight periods at 6% 6.210

Present value of annuity for eight periods at 8% 5.747

Present value of annuity for 16 periods at 3% 12.561

Present value of annuity for 16 periods at 4% 11.652

Find the present value of the interest?

$344,820.

$349,560.

$372,600.

$376,830.

Q4. On January 1, 2010, Jacobs Company sold property to Dains Company that originally cost Jacobs $760,000. There was no established exchange price for this property. Dains gave Jacobs a $1,200,000 zero-interest-bearing note payable in three equal annual installments of $400,000, with the first payment due December 31, 2010. The note has no ready market. The prevailing rate of interest for a note of this type is 10%. The present value of a $1,200,000 note payable in three equal annual installments of $400,000 at a 10% rate of interest is $994,800. What is the amount of interest income that should be recognized by Jacobs in 2010, using the effective-interest method?

$0.

$40,000.

$99,480.

$120,000.

Q5. On January 1, 2006, Goll Corp. issued 1,000 of its 10%, $1,000 bonds for $1,040,000. These bonds were to mature on January 1, 2016, but were callable at 101 any time after December 31, 2009. Interest was payable semiannually on July 1 and January 1. On July 1, 2011, Goll called all of the bonds and retired them. Bond premium was amortized on a straight-line basis. Before income taxes, Goll's gain or loss in 2011 on this early extinguishment of debt was

$30,000 gain.

$12,000 gain.

$10,000 loss.

$8,000 gain.