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

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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
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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...
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