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    Total obligation and loss recorded on bonds

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    1) The December 31, 2006, balance sheet of Eddy Corporation includes the following items:
    9% bonds payable due December 31, 2015 $1,000,000
    Unamortized premium on bonds payable 27,000

    The bonds were issued on December 31, 2005, at 103, with interest payable on July 1 and December 31 of each year. Eddy uses straight-line amortization. On March 1, 2007, Eddy retired $400,000 of these bonds at 98 plus accrued interest. What should Eddy record as a gain on retirement of these bonds? Ignore taxes:$18,800
    $10,800
    $18,600
    $20,000

    2) The 10% bonds payable of Klein Company had a net carrying amount of $570,000 on December 31, 2006. The bonds, which had a face value of $600,000, were issued at a discount to yield 12%. The amortization of the bond discount was recorded under the effective-interest method. Interest was paid on January 1 and July 1 of each year. On July 2, 2007, several years before their maturity, Klein retired the bonds at 102. The interest payment on July 1, 2007 was made as scheduled. What is the loss that Klein should record on the early retirement of the bonds on July 2, 2007? Ignore taxes:

    $12,000
    $37,800
    $33,600
    $42,000

    3) . On December 31, 2007, Pool Corporation leased a ship from Renn Company for an eight-year period expiring December 30, 2015. Equal annual payments of $200,000 are due on December 31 of each year, beginning with December 31, 2007. The lease is properly classified as a capital lease on Pool's books. The present value at December 31, 2007 of the eight lease payments over the lease term discounted at 10% is $1,173,685. Assuming all payments are made on time, the amount that should be reported by Pool Corporation as the total obligation under capital leases on its December 31, 2008 balance sheet is:

    $1,091,054.
    $1,000,159.
    $871,054.
    $1,200,000.

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    ANSWERS

    1) The December 31, 2006, balance sheet of Eddy Corporation includes the following items:
    9% bonds payable due December 31, 2015 $1,000,000
    Unamortized premium on bonds payable 27,000

    The bonds were issued on December 31, 2005, at 103, with interest payable on July 1 and December 31 of each year. Eddy uses straight-line amortization. On March 1, 2007, Eddy retired $400,000 of these bonds at 98 plus accrued interest. What should Eddy record as a gain on retirement of these bonds? Ignore taxes
    $18,600

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    Solution Summary

    The total obligation and loss recorded on bonds are examined.

    $2.49

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