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ACC/422 ACC 422 Week 4 CPA Solutions”

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ACC 422 Week 4 CPA Solutions On September 30, World Co. borrowed $1,000,000 on a 9% note payable. World paid the first of four quarterly payments of $264,200 when due on December 30. In its December 31, balance sheet, what amount should World report as note payable? $735,800 $750,000 $758,300 $825,800 Gain contingencies are usually recognized in the income statement when Realized. Occurrence is reasonably possible and the amount can be reasonably estimated. Occurrence is probable and the amount can be reasonably estimated. The amount can be reasonably estimated. For a bond issue which sells for less than its par value, the market rate of interest is Dependent on rate stated on the bond. Equal to rate stated on the bond. Less than rate stated on the bond. Higher than rate stated on the bond. In December year 1, Mill Co. began including one coupon in each package of candy that it sells and offering a toy in exchange for 50 cents and five coupons. The toys cost Mill 80 cents each. Eventually 60% of the coupons will be redeemed. During December, Mill sold 110,000 packages of candy and no coupons were redeemed. In its December 31, year 1 balance sheet, what amount should Mill report as estimated liability for coupons? $ 3,960 $10,560 $19,800 $52,800 When the interest payment dates of a bond are May 1 and November 1, and the bond is issued on June 1, year 1, the amount of interest expense for the year ended December 31, year 1, would be for 2 months. 6 months. 7 months. 8 months. White Airlines sold a used jet aircraft to Brown Company for $800,000, accepting a 5-year 6% note for the entire amount. Brown’s incremental borrowing rate was 14%. The annual payment of principal and interest on the note was to be $189,930. The aircraft could have been sold at an established cash price of $651,460. The present value of an ordinary annuity of $1 at 8% for five periods is 3.99. The aircraft should be capitalized on Brown’s books at $651,460 $757,820 $800,000 $949,650 Foley Co. is preparing the electronic spreadsheet below to amortize the discount on its 10-year, 6%, $100,000 bonds payable. Bonds were issued on December 31 to yield 8%. Interest is paid annually. Foley uses the effective interest method to amortize bond discounts. A B C D E Cash Interest Discount Carrying 1 Year paid expense amortization amount 2 1 $86,580 3 2 $6,000 Which formula should Foley use in cell E3 to calculate the bonds’ carrying amount at the end of year 2? E2 + D3. E2 – D3. E2 + C3. E2 – C3. On September 1, year 1, a company borrowed cash and signed a 2-year interest-bearing note on which both the principal and interest are payable on September 1, year 3. The company did not elect the fair value option for reporting this note. At December 31, year 2, the liability for accrued interest should be Zero. For 4 months of interest. For 12 months of interest. For 16 months of interest. On January 1, 2000, Fox Corp. issued 1,000 of its 10%, $1,000 bonds for $1,040,000. These bonds were to mature on January 1, 2010 but were callable at 101 any time after December 31, 2003. Interest was payable semi-annually on July 1 and January 1. On July 1, 2005, Fox called all of the bonds and retired them. The bond premium was amortized on a straight-line basis. Before income taxes, Fox’s gain or loss in 2005 on this early extinguishment of debt was $30,000 gain. $12,000 gain. $10,000 loss. $8,000 gain An investor purchased a bond classified as a long-term investment between interest dates at a premium. At the purchase date, the carrying value of the bond is more than the Cash paid to seller

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