Question

1. On January​ 1, 2017, bonds with a face value of​ $94,000 were sold. The bonds mature on January​ 1, 2027. The face interest rate is​ 8% annually. The bonds pay interest semiannually on July 1 and January 1. The market rate of interest is​ 10% annually. What is the market price of the​ bonds? The present value of​ $1 for 20 periods at​ 5% is 0.377. The present value of an ordinary annuity of​ $1 for 20 periods at​ 5% is 12.462. The present value of​ $1 for 10 periods at​ 10% is 0.463. The present value of an ordinary annuity of​ $1 for 10 periods at​ 10% is 6.145.​ (Round your final answer to the nearest​ dollar.)

A.$94,000

B.​$82,295

C.​$66,627

D.$97,760

2.On the cash flow​ statement, the purchase and sale of bonds of other companies to be held for an extended time are reported​ as:

A.operating activities

B.financing activities

C.investing activities

D.would not appear on a cash flow statement

3.On April​ 1, 2016, Transportation Imbalance Company​ (TIC) purchased​ $5,000 of​ 6% bonds as alongminus−term investment to be held to maturity. TIC is a private corporation that elects to report its financial results in accordance with ASPE. Its year end is December 31 an Interest dates are April 1 and October 1. The bonds mature 36 months from the purchase date. The purchase price of the bonds was​ $5,120, and the premium is amortized on the straightminus−line basis. Assume the proper adjusting entry was made on December​ 31, 2016, to record accrued interest receivable and amortization of the premium. The total interest revenue recorded by Transportation Imbalance Company on April​ 1, 2017 will​ be:

A.​$72.50

B.​$150.00

C.​$75.00

D.​$65.00

4.Yukon Electrical Company owns all of the stock of Simmons Corporation and​ 80% of the stock of Iminus−Tek Corporation. In​ 2017, Yukon earned net income of​ $450,000, Simmons earned​ $120,000, and Iminus−Tek earned​ $180,000. Yukon's consolidated income statement would report consolidated net income​ of:

A.​$714,000

B.​$750,000

C.​$450,000

D.​$570,000

Answer 1

1. On January​ 1, 2017, bonds with a face value of​ $94,000 were sold

Years to maturity = 10 years

Number of periods to get interest = 10 * 2 semi annual period = 20

The face interest rate is​ 8% annually, so semi annually = 8 / 2 = 4%

Interest payment = face value * semi annual face rate = 94000 * 4% = 3760

Market interest rate = 10%, it used as discount rate for semi annual period = 10 / 2 = 5%

.

Bond price = ( Interest * PVIFA,r,n ) + ( Face value * PVIF,r,n )

.

Where,

Interest = 3760

R = discount rate = 5%

N = Number of periods to get interest = 20

PVIFA,r,n = The present value of an ordinary annuity of​ $1 for 20 periods at​ 5% is 12.462

PVIF,r,n = The present value of​ $1 for 20 periods at​ 5% is 0.377.

.

Bond value = ( 3760 * 12.462 ) + ( 94000 * 0.377 )

Bond Value = 46857.12 + 35438

Bond Value = 82295

.

What is the market price of the​ bonds?

.

B.​$82,295

.

2. On the cash flow​ statement, the purchase and sale of bonds of other companies to be held for an extended time are reported​ as:

.

Ans: C .investing activities.

.

If the business holds any bonds, all related cash transactions will affect the investing activities section of the statement. When the business purchases the bond, the amount paid will be listed as an outflow.

.

3. On April​ 1, 2016, Transportation Imbalance Company​ (TIC) purchased​ $5,000 of​ 6% bonds. TIC is a private corporation that elects to report its financial results in accordance with ASPE. Its year end is December 31 an Interest dates are April 1 and October 1. The bonds mature 36 months from the purchase date. The purchase price of the bonds was​ $5,120, and the premium is amortized on the straightminus−line basis. Assume the proper adjusting entry was made on December​ 31, 2016, to record accrued interest receivable and amortization of the premium. The total interest revenue recorded by Transportation Imbalance Company on April​ 1, 2017 will​ be:

.

Interest income of the period jan 1. To Mar 31, are accrued .

So, interest receivable on three month period ( jan to mar end )

= 5000 * 6% * 3 / 12 = 75

Amortised cost of bond in three month period = premium / 36 * 3

= premium = 5120 – 5000 = 120

Amortised cost of bond in three month period = 120 / 36 * 3 = 10

.

The journal entry recorded on April 1 was

DR Interest Receivable   ---------------------------------- $75

CR Interest Income -----( 75 – 10 ) ---------------------- $65

CR Amortization of premium on Bond ------------------$10

.

So the interest income of $65 are recorded

.

Ans: D.​$65.00

.

4. Yukon Electrical Company owns all of the stock of Simmons Corporation and​ 80% of the stock of Iminus−Tek Corporation. In​ 2017, Yukon earned net income of​ $450,000, Simmons earned​ $120,000, and Iminus−Tek earned​ $180,000. Yukon's consolidated income statement would report consolidated net income​ of:

.

Consolidated net income is reported on the consolidated income statement for periods after acquisition. When the subsidiary is not wholly owned, the consolidated net income is classified into two components: consolidated net income attributable to controlling interest and consolidated net income attributable to non-controlling interest.

.

So here the income statement the Total consolidated income

= 450000 + 120000 + 180000 = $750000

Are report in the statement.

.

Ans: B.​$750,000