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15. On February 1, 2019, Pat Weaver Inc. (PWI) issued 10%, $1,000,000 bonds for $970,000. PWI...

15. On February 1, 2019, Pat Weaver Inc. (PWI) issued 10%, $1,000,000 bonds for $970,000. PWI retired all of these bonds on January 1, 2020, at 98. Unamortized bond discount on that date was $15,000. How much gain or loss should be recognized on this bond retirement?

a. 10,000 loss

b. 10,000 gain

c. 5,000 loss

d. 5,000 gain

19. Blue Co. recorded a right-of-use asset of $400,000 in a 8-year finance lease. Payments of $72,270 are made annually at the end of each year. The interest rate charged by the lessor was 9%. The balance in the lease payable after two years will be:

a. 238,332

b. 284,956

c. 324,196

d. 363,730

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Answer #1

15. D. $5,000 GAIN

CARRYING VALUE OF BOND ON JANUARY 1, 2020 = $1,000,000 - $15,000 = $985,000

RETIREMENT AMOUNT = $1,000,000 * 98% = $980,000

GAIN = CARRYING VALUE - RETIREMENT VALUE

= $985,000 - $980,000 = $5000 (GAIN)

19.. C. $324,196

1ST PAYMENT

INTEREST PAID = $400,000 * 9% = $36,000

AMOUNT PAID = $72,270

PRINCIPAL PAID = $72,270 - $36,000 = $36,270

CARRYING VALE AT END = $400,000 - $36,270 = $363,730

2ND PAYMENT

INTEREST PAID = $363,730 * 9% = $32,736

AMOUNT PAID = $72,270

PRINCIPAL PAID = $72,270 - $32,736 = $39,5364

CARRYING VALUE AT END = $363,730 - $39,534 = $324,196

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