{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Ch09QuizSol

Ch09QuizSol - = 898.48 94,706 898.48 = 95,604.48...

This preview shows pages 1–2. Sign up to view the full content.

Quiz #6 - Chapter 9 - Solution Please choose the BEST answer for each of the following multiple-choice questions. 1. When a firm leases a resource for most of its useful life and controls the resource as though it had been purchased, the lease is treated as a. an operating lease c. a primary lease e. an ownership lease b. a capital lease d. a producing lease. 2. A 10% bond is sold at a price that will result in a 9% effective yield. Therefore, we can conclude that the price at which the bond was sold was a. greater than face value b. less than face value c. equal to face value d. not determinable from above information Use the following information for questions 3 - 5 On January 1, 2007, Delta Company issued 5-year bonds having a face value of \$100,000. The bonds pay 7% interest annually and were sold for \$94,706 to yield 8.34% interest. 3. Delta's 2008 (second year) income statement should report what amount for interest expense on these bonds? \$7,973.41 94,706 * .0834 = 7,898.48 (Yr 1 interest); 7,898.48 - 7,000

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: = 898.48 94,706 + 898.48 = 95,604.48; 95,604.48 * .0834 = 7,973.41 (Yr 2 interest) 4. What amount of net liability would Delta report for the bonds on its 2008 balance sheet? \$96,577 7,973 - 7,000 = 973 (discount amortized) 95,604 + 973 = 96,577 5. Assume that the owner of the bonds decided to sell them on January 1, 2010, when the market interest rate once again happened to be 8.34%. How much would the bonds sell for on that date? \$97,632 Because the interest rate on 1/1/10 is the same as when the bonds were initially sold, the selling price would be equal to the book value of the bonds on 1/1/10. A B C D E F Period Present Value at Beginning of Period Effective Interest (B × 0.0834) Interest Payment @ 0.07 Amortization of Principal (C -D) Value at End of Period (B + E) 1 94,706 7,898 7,000 898 95,604 2 95,604 7,973 7,000 973 96,577 3 96,577 8,055 7,000 1,055 97,632 4 97,632 8,143 7,000 1,143 98,775 5 98,775 8,238 7,000 1,238 100,013* *Rounding...
View Full Document

{[ snackBarMessage ]}

What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern