Question

1.

HNE Inc., issued bonds for $104,000 on January 1, 2018. The bonds had a face value of $100,000 and paid interest annually at 9%. The market rate on the date of issue was 8%. The first interest payment is on December 31, 2018, and HNE, Inc. prepares annual financial statements at 12/31 each year. How much interest expense will HNE, Inc. recognize in 2018 related to these bonds?

1.

8,000

2.

8,320

3.

9,000

4.

9,360

5.

None of the above

2.

HNE Inc., issued bonds for $104,000 on January 1, 2018. The bonds had a face value of $100,000 and paid interest annually at 9%. The market rate on the date of issue was 8%. The first interest payment is on December 31, 2018, and HNE, Inc. prepares annual financial statements at 12/31 each year. What will be the carrying value of the bond on the 12/31/2018 balance sheet?

1.

103,640

2.

103,320

3.

103,000

4.

104,000

5.

None of the above

3.

Goat Industries purchased $4,000 of marketable securities on January 1, 2016. On December 31, 2016 the securities' market value had increased to $6,500. If the securities are classified as held-to-maturity, how would the increase in market value affect Goat's financial statements?

               

Assets

Equity

Investment

Ret.

Unr.

Rev./

Exp./

Net

Cash

Securities

=

Liab.

+

Earn.

Gains

Gain

-

Loss

=

Income

Flow

A)

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

B)

2,500

n/a

2,500

n/a

2,500

n/a

2,500

n/a

C)

2,500

n/a

2,500

n/a

n/a

n/a

n/a

n/a

D)

2,500

n/a

n/a

2,500

n/a

n/a

n/a

n/a

Answer 1

Q1.
Answer is 2. $ 8320
Explanation:
Issue price			104000
Market rate of interest			8%
Interest expense for year-2018			8320
Q2.
Answer is 2. $ 103320
Explanation:
Cash interest (100000*9%)			9000
Less: Interest expense			8320
Premium amortized			680
Unamortized premium =4000-680 = 3320
Bonds payable carrying value = 100000+3320=103320
Q3.
Answer is D. Investment $2500 = Unrel Gains $2500