Question 1) Nickel Inc. owns $400,000 of 10-year, 9% bonds as an investment on December 31, 2010. The bonds have 3 years remaining to maturity. The unamortized premium remaining on these bonds was $36,000. Nickel uses straight-line amortization. On May 1, 2011, $80,000 of the bonds were redeemed at 115. How much, and what type of gain or loss, most likely results from this redemption?
- $5,600 extraordinary gain.
- $5,600 ordinary gain.
- $5,600 ordinary loss.
- $5,600 extraordinary loss.
Question 2) Bond X and bond Y both are issued by the same company. Each of the bonds has a maturity value of $100,000 and each pays interest at 8%. The current market rate of interest is 8% for each. Bond X matures in 7 years while bond Y matures in 10 years. Which of the following is correct?
- Both bonds sell for the same amount.
- Both bonds sell for more than $100,000.
- Bond X sells for more than bond Y.
- Bond Y sells for more than bond X.
Question 3) On January 1, 2011, Legion Company issued $260,000 of 6% ten-year bonds. Interest is payable semiannually on June 30 and December 31. The bonds were sold for $195,197, priced to yield 10%. Legion records interest at the effective rate. Legion should report bond interest expense for the six months ended June 30, 2011, in the amount of (Round your answer to the nearest dollar amount):
- $7,800
- $9,760
- $13,000
- $31,200
Question 4) On February 1, 2010, Pat Weaver Inc. (PWI) issued 8%, $1,700,000 bonds for $2,000,000. PWI retired all of these bonds on January 1, 2011, at 106. Unamortized bond premium on that date was $180,200. How much gain or loss should be recognized on this bond retirement?
- $78,200 gain.
- $136,000 gain.
- $0 gain.
- $160,000 gain.
Question 5) Bonds are issued on June 1 that have interest payment dates of April 1 and October 1. Bond interest expense for the year ended December 31, 2011, is for a period of:
- Three months.
- Four months.
- Six months.
- Seven months.