12. The bond interest expense reflected on the income statement muust reflect an a mount based on Effective interest rate Stated interest rate a. Nominal interest rate. d Contract interest rate 13, on lanuary 1, 2010, the Jordan Co. issued $1,000,000 of 20-year, 8% bonds for $1,036,000 interest vwas payable annually. The effective yield was he effective interest method was used to amortize the premium What amount of premium would be amortized fo ecember r the year ended 31. 20107 s 2,300 b S 1.650 e None of the above c 1,800 1S The BNC Bank loaned Janus Janus Company cash with a payback at the end of 12 months. The note was a noninterest bearing note with a rate of 10% therefore, Janus received $90,000 at the beginning of the year and will repay the face amount of the note of $100,000 at the end of the 12 months. The effective interest rate for this loan is: 1096. 9.09%. 10.87%. a b. None of the above. On January 1, 2006, Puckett Co. issued $100,000 of 8% ten-year bonds at 98. On December 31, 2010, the bonds were called at 103. What was the loss on bond retirement, assuming the use of straight-line amortization for the discount and bond issue cost? d $5,000 C$3,500. eNone of these amounts. a$2,500 b$3,000 { 00K On luly 1, 2010, Soft Touch accepted in a sales transaction a three-year note with a maturity amount of$30,000 and an interest rate of 6%. The 6% interest on the note was to be paid at the end ofeach of the three years. The 6%,mterest rate was not the market interest rate for this ni The market rate for thisnote would be 11%. Presentv tefactorsfor three periods follows: Present value of 1 Present value of annuity of 1 for three periods 0.83962 2.67301 0.73119 2.44371 Vhat amount should Soft Touch credit to Sales? $21,935.70. 30,000,02 $20,000-00 $26,334.38
Solution 12:
Bond interest expense reflected on the income statement must reflect an amount based on effective interest rate.
Hence option a is correct.
Solution 14:
Interest expense for 2010 = $1,036,000 * 7.50% = $77,700
Interest paid for 2010 = $1,000,000 * 8% = $80,000
Premium amortized for 2010 = $80,000 - $77,700 = $2,300
Hence option a is correct.
Solution 15:
Net Amoun received in beginning = $90,000
Total payment to be made on maturity = $100,000
Interest amount = $100,000 - $90,000 = $10,000
Effective interest rate = $10,000 / $90,000 = 11.11%
Hence option d is correct.
Solution 16:
Total discount on bond = $100,000 * 2% = $2,000
Discount amortized till Dec 31,2010 = $2,000/10*5 = $1,000
Carrying value of bond on December 31, 2010 = $100,000 - $1,000 = $99,000
Call value of bond = $100,000 * 103% = $103,000
Loss on retirement of bond = $103,000 - $99,000 = $4,000
Hence option e is correct.
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