Question

41-45

Herman Company received proceeds of $188,500 on 10-year, 8% bonds issued on January 1, 2009. The bonds had a face value of $200,000, pay interest semi-annually on June 30 and December 31, and have a call price of 101. Herman uses the straight-line method of amortization.

What is the carrying value of the bonds on January 1, 2011?

		$200,000
		$190,800
		$197,700
		$189,650

Depletion expense for a period is only recognized on natural resources that have been extracted and sold during the period.

True

False

The book value of a plant asset is always equal to its fair market value.

True

False

On July 1, 2008, Marsh Company purchased the copyright to Parsons Computer tutorials for $162,000. It is estimated that the copyright will have a useful life of 5 years with an estimated salvage value of $12,000. The amount of Amortization Expense recognized for the year 2008 would be

		$32,400
		$15,000
		$30,000
		$16,200

The principal disadvantage of the indirect method of reporting cash flows from operating activities is that is is costly to accumulate the data needed and to preparethe statement of cash flows.

True

False

Answer 1

1) Straight line amortization = 200000-188500/20 = 575 per semiannual period

Carrying value = 188500+(575*4) = 190800

So answer is b) $190800

2) Depletion expense for a period is only recognized on natural resources that have been extracted and sold during the period.

So above statement is true

3) The book value of a plant asset is always equal to its fair market value.

So above statement is False

4) Amortization expense per year = (162000-12000/5) = 30000 per year

Amortization expense for 2008 = 30000*6/12 = 15000

So answer is b) $15000

5) The principal disadvantage of the indirect method of reporting cash flows from operating activities is that is is costly to accumulate the data needed and to preparethe statement of cash flows.

So answer is False