978-1337276337 Test Bank Chapter 10 Part 5

Chapter 10

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191. Stanton Heights Corporation issued $95,000 face value bonds at a discount of $5,000. The bonds contain a call price

of 102. Stanton Heights decides to redeem the bonds early when the unamortized discount is $2,750.

1. Calculate Stanton Heights Corporation’s gain or loss on the early redemption of the bonds.

2. Describe how the gain or loss would be reported on the income statement and in the notes to the financial statements.

2. The gain or loss on bond redemption should be presented on the income statement. In most cases, the gain or loss on

bond redemption should not be considered unusual or infrequent and therefore should not be presented in the section of

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192. Burger Barn Company issued $150,000 face value bonds at a premium of $6,000. The bonds contain a call provision

of 102. Burger Barn decides to redeem the bonds due to a significant decline in interest rates. On that date, Burger Barn

1. Calculate the gain or loss on early redemption of the bonds.

2. Determine the impact on the accounting equation of the journal entry recorded at the time of bond redemption.

3. Where should the gain or loss should be presented on the financial statements?

4. Why is the call price normally higher than 100?

2.

Bond redemption

3. The gain or loss on bond redemption should be presented on the income statement. In most cases, the gain or loss on

bond redemption should not be considered unusual or infrequent and therefore should not be presented in the section of

4. Bonds are redeemed early only if it is advantageous to the issuing firm. However, early redemption is usually not

favorable to the investor because it normally means the investor can no longer benefit from a favorable interest rate. To

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194. Review the information for Antietam Corporation.

Required

Determine the effect on the accounting equation when recording each type of lease described in the previous question.

195. Review the information for Antietam Corporation.

Chapter 10

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Required

The note disclosure mentions contingent rent payments. What do you think this means with regard to Antietam

Corporation?

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196. Wet Paint Company signed a ten-year lease agreement on January 1, 2017. The lease requires payments of $65,000

per year every December 31. Wet Paint estimates that the leased property has a life of 11 years. The interest rate that

1. Should Wet Paint Company treat the lease as an operating lease or a capital lease?

2. If a balance sheet is presented on January 1, 2017, what amounts related to the lease will appear on the balance sheet?

3. Assume that the leased asset is depreciated using the straight-line method and the lease is amortized using the effective

interest method. What journal entries should Wet Paint make on December 31, 2017?

2.

Leased asset $65,000 × 5.650 = $367,250 Table 9-4, n =10, i = 12%

3.

Interest Expense (12% × $367,250) 44,070

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198. [Appendix] Review the information for Padagonian Company.

Required

(1) In your opinion, are deferred income taxes an appreciable portion of both long-term liabilities and total liabilities?

Why?

(2) What difference between accounting income and taxable income produces the Deferred Income Taxes account?

(3) Will Padagonian eventually pay the deferred tax liability? When?

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199. [APPENDIX] How do most changes in long-term liabilities on the balance sheet appear on the cash flow statement?

200. [APPENDIX] Describe briefly how each of the following long-term liabilities arises (i.e., what kind of transaction

produces the resulting long-term liability?) You may want to include the appropriate accounts to increase or decrease

(ignore amounts) in your description.

a) Long-term debt

b) Deferred income taxes

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201. [APPENDIX] On January 1, 2017, Hart Company purchased an asset for $137,500. For financial accounting

purposes, the asset will be depreciated on a straight-line basis over five years with no residual value at the end of that

1. What is the amount of deferred tax at December 31, 2017?

2. Does the deferred tax represent an asset or a liability?

3. What is the amount of deferred tax at December 31, 2021?

2. The amount will be a deferred tax liability.

3. At December 31, 2021, the amount of deferred tax will be $0.

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202. A bond with a face value of $10,000 is issued at a discount of $800 on January 1, 2017. The face rate of interest on

the bond is 7%.

1. Was the market rate at the time of issuance greater than 7% or less than 7%?

2. If a balance sheet is presented on January 1, 2017, how will the bonds appear on the balance sheet?

3. If a balance sheet is presented on December 31, 2017, will the amount for the bonds be higher or lower than on January

1, 2017?

2.

Bonds payable $10,000

Less: Discount on bonds (800)

3. Since the discount will be amortized, the amount will be higher than $9,200.

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203. Stanton Heights Corporation decides to redeem its $100,000 face value bonds when the carrying value is

$107,019.48. The bonds are redeemed on December 31, 2017, at 102.

1. Calculate Stanton Heights Corporation’s gain or loss on the early redemption of the bonds.

2. Determine the impact on the accounting equation of the journal entry recorded at the time of bond redemption.

2. Bonds Payable decreases by ………………………… 100,000.00

Premium on Bonds decreases by …………………… 7,019.48