1. Concord Inc issues(sells) $100,000 of itâ??s 10 year 8% bonds to yield 10% on January 1, Year 1..

 
   

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1. Concord
Inc issues(sells) $100,000 of it’s 10 year 8% bonds to yield 10% on January 1,
Year 1. The bonds pay interest annually
on December 31. The bonds were sold with
a discount of $12,289. What is the bond
carrying amount(book value) at the end of Year 1?
a)
$88482
b) $96482
c) $100000
d) $100711

2. Concord
Inc issues (sells) $100000 of its 10 year 8% bonds to yield 10% on January 1,
Year 1. The bonds pay interest annually
on December 31. The bonds were sold with
a discount of $12289. What is the bond
interest expense for Year 1.
a)
$8000
b) $8771
c)
$10000
d)
$10771

3. Concord
Inc issues (sells) $100000 of its 10 year 8% bonds to yield 10% on January 1,
Year 1. The bonds pay interest annually
on December 31. The bonds were sold with
a discount of $12289. Calculate the
amount of cash interest paid on the bonds in Year 1.
a)
$7017
b) $8000
c)
$8771
d)
$10000

4. Concord
Inc issues (sells) $100000 of its 10 year 8% bonds to yield 10% on January 1,
Year 1. The bonds pay interest annually
on December 31. The bonds were sold with
a discount of $12289. Calculate the
amount of bond discount amortization for Year 2.
a) $848
b)
$1229
c)
$1540
d)
$2000
e)

5. Will
company issued $100000 worth of bonds on January 1, Year 3 with interest
payable annually. The bonds had a
contract rate of 8%. The bonds were set
up as floating-rate debt with the rate benchmarked to LIBOR plus 3%. The entry to record the sale (issuance) of
the bonds would be which one of the following?
a)
DR Cash 100000 CR Bonds Payable 100000
b)
DR Bonds Payable 100000 CR Cash 100000
c)
DR Cash 108000 CR
Bonds Payable 108000
d)
DR Cash 111000 CR
Bonds payable 111000

6. Will
company issued $100000 worth of bonds on January 1, Year 3 with interest
payable annually. The bonds had a
contract rate of 8%. The bonds were set
up as floating-rate debt with the rate benchmarked to LIBOR plus 3%. What would interest expense for year one if
LIBOR is 5% be?
a)
$3000
b)
$5000
c) $8000
d)
$9000

7. Research
on debt-for-equity swaps has shown that most of these swaps have resulted in an
extinguishment gain. Therefore, some
analysts have argued that debt-for-equity swaps have been undertaken to:
a)
Negatively alter capital structure
b) Provide no altercation of
capital structure
c)
Provide no real economic benefit
d)
Smooth transitory decreases in quarterly
earnings.

8. Which
one of the following contingencies must be accrued on the balance sheet?
a)
The probable loss on a lawsuit that the firm’s
attorneys believe will be dropped.
b)
The probable loss on a lawsuit that the firm’s
attorneys believe will be settle for $90000
c)
The reasonably probable loss on a lawsuit that
the firms attorneys believe will be incurred, but the amount is unknown.
d) The reasonable possible loss on
a lawsuit that the firm’s attorneys believe will be settled for $90000.

9. Hall
Inc agrees to lease equipment from White Inc for 10 years for $50000 at the end
of each year. The equipment has a fair
value of $350000 and an estimated useful life of 10 years. The lease includes a guaranteed residual
value of $20000. In addition to the
lease payments, Hall will pay $10000 per year for a maintenance agreement. Hall can finance this lease with its bank at
a 12% rate. The lessor’s implicit
interest rate is 10%. The Hall lease is
a/an:
a) Capital lease because the lease
term is more than 75% of the life of the asset.
b)
Capital lease because the lease value is 90% of
the fair value of the asset.
c)
Operating lease because the lease value is less
than 90% of the fair value of the asset.
d)
Operating lease because the asset reverts to
White at the end of the lease.

10. Hall
Inc agrees to lease equipment from White Inc for 10 years for $50000 at the end
of each year. The equipment has a fair
value of $350000 and an estimated useful life of 10 years. The lease includes a guaranteed residual
value of $20000. In addition to the
lease payments, Hall will pay $10000 per year for a maintenance agreement. Hall can finance this lease with its bank at
a 12% rate. The lessor’s implicit
interest rate is 10%. What is the entry
to record this lease on Hall’s books?
a)
DR Leased equipment – capital lease $288951 CR Obligation under capital lease
$288951
b) DR Leased equipment – capital
lease $314949 CR Obligation
under capital lease $314939
c)
DR Leased equipment – capital lease $314939 DR Discount on lease obligation
$185061 CR Obligation under
capital lease $500000
d)
DR Leased equipment – capital lease $334939 DR Discount on lease obligation
$165061 CR Obligation under
capital lease $500000

11. Hall
Inc agrees to lease equipment from White Inc for 10 years for $50000 at the end
of each year. The equipment has a fair
value of $350000 and an estimated useful life of 10 years. The lease includes a guaranteed residual
value of $20000. In addition to the
lease payments, Hall will pay $10000 per year for a maintenance agreement. Hall can finance this lease with its bank at
a 12% rate. The lessor’s implicit
interest rate is 10%. At the end of year
1, Hall will make a payment of $60000.
How much straight-line depreciation expense will Hall record for year 1?
a) $29494
b)
$30723
c)
$31494
d)
$35000

12. Burrell
Corp leases a building from Bennett Corp for 10 years for $50000 at the end of
the year. The building has a fair value
of $350000 and an estimated useful life of 25 years. In addition to the lease payments, Burrell
will pay $10000 per year for general maintenance. Burrell can finance this lease with its bank
at a 12% rate. The lessor’s implicit
interest rate is 10%. The Burrell lease
is a/an:
a)
Capital lease because the lease term is more
than 75% of the life of the asset.
b)
Capital lease because the lease value is 90% or
more of the fair value of the asset.
c) Operating lease because the
asset reverts to the lessor at the end of the lease.
d)
Operating lease because the lease value is less
than 90% of the fair value of the asset,

13. Randall
Corp leases a truck from David’s Trucks with
a 5 year non-cancelable lease on January 1, Year 5 with the following
terms,
-5 payments of
$26379.74(a 9% implicit rate) due at the end of each year.
-the fair value
of the truck is $100000 and cost David $80000
-The lease is
nonrenewable the truck revers to David at the end
-the truck has a
6 year economic life
-Randall has
excellent credit rating
-David offers no
warranty on the truck other than the manufacturer’s 2 year warranty.
Which one of the
following entries will David’s Trucks make to record the lease?
a)
DR Gross investment in leased assets 131989.70
CR Equipment 131898.70
b) DR Gross investment in leased
assets 131898.70
DR
Cost of goods sold 80000.00
CR
Sales 100000.00
CR
Unearned financing income-leases 31898.70
CR
Inventory 80000.00
c)
DR Accounts receivable – leases 131898.70
CR Cash 26379.74
CR Inventory 105518.96
d)
DR Gross investment in leased assets 131898.70
DR Cost of goods sold 80000.00
CR Sales 180000.00
CR Unearned financing income-leases 31898.70

14. If
the Bean Company sells an asset to Corn Company for a profit of $175000 and
immediately leases it back with a capital leases, the gain is recognized by
Bean:
a)
Immediately as an extraordinary gain
b)
Immediately as an ordinary gain
c)
Over the life of the lease in proportion to the
rental payment
d) Over the life of the lease using
the same rate and life used to amortize the leased asset.