Please provide a breakdown of the solutions.
On January 1, Year 1, Worthy Co. issued $1,000,000 of bonds
payable. The bonds mature in five years on December 31, Year 5, and
pay 9% interest once a year on December 31. The issue sold for
$891,857 to yield 12%. Worthy uses the effective interest method.
Assume that the bond's fair value is $940,000 at December 31, Year
3, and its book value is $949,298. If Worthy chooses the fair value
option, it will report:
|
a. no gain or loss on its income
statement. |
|
|
|
b. again on its income
statement. |
|
|
|
c. a loss on its income
statement. |
|
On January 1, Year 1, Worthy Co. issued $1,000,000 of bonds
payable. The bonds mature in five years on December 31, Year 5, and
pay 9% interest once a year on December 31. The issue sold for
$891,857 to yield 12%. Assume that Worthy has not chosen the fair
value option, interest rates decrease during the period, and Worthy
pays off the bond at maturity. Which of the following is true?
|
a. Worthy will report a gain on
retirement in Year 5. |
|
|
|
b. Worthy will report a loss on
retirement in Year 5. |
|
|
|
c. Worthy will report no gain or
loss on retirement in Year 5. |
|