Question

QUESTION 1 Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $10,000. If the issuing corporation redeems t bonds at 97.5, what is the amount of gain or loss on redemption? a $25,000 loss b. $ 10,000 loss .$25,000 gain Od.$15,000 gain QUESTION 2 Basil Corporation issues for cash $1,000,000 of 8%, 10-year bonds, interest payable annually, at a time when the miarket rate ofinterest is 7% The straight-line method is adopted for the amortization of bond discount or premium, which of the following statements is true? Oa. The amount of annual interest paid to bondholders increases over the 10-year life of the bonds. b. The carrying amount decreases from its amount at issuance date to $1,000,000 at maturity C. The carrying amount increases from its amount at issuance date to $1,000,000 at maturity. d.The amount of annual interest expense decreases as the bonds approach maturity. QUESTION 3 Bonds Payable has a balance of $1,000,0 and iscon on Bonds Payable has a balance of s15,.0 f the isuing corporation redeems the bonds at 98.5, what is the amount of gain or loss on redemption? a. $15,500 loss Ob.$15,500 gain Oc. $500 gain d.$500 loss QUESTION 4 Only callable bonds can be purchased by the issuing corporation before maturity True False

Answer 1

Q 1. Redemption profit = total profit - discount

=$25000- $10000 = $ 15000 gain option D answer.

Q2. Option b will be the correct answer that the carrying amount will decrease from its actual amount at issuance date to $1,000,000 at maturity.

Q 3.

Profit/ loss = profit on sale - discount on issue.

= $15000 - $ 15500

= ( $500 ) loss option d correct answer.

Q4. The statement is false. As this shows only the right of company that it can purchase before maturity that doesn't mean only callable can be purchased before maturity.

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