In: Accounting
Oriole Company purchased a building on January 2 by signing a long-term $3564000 mortgage with monthly payments of $32600. The mortgage carries an interest rate of 10 percent. The amount owed on the mortgage after the first payment will be
$3564000. |
$3561100. |
$3534300. |
$3531400. |
A $500,000 bond is retired at 97 when the carrying value of the
bond is $483,000. Which of the following is one effect of recording
the retirement?
A $15,000 gain |
A $2,000 loss |
A $2,000 gain |
A $15,000 loss |
Question 1 | |
The answer is Option 2: $ 3,561,100 | |
Particulars | Amount (in $) |
Mortgage Loan | 3,564,000 |
Interest for first month | 29,700 |
(3,564,000 x 10% x 1/12) | |
Total mortgage outstanding after one month | 3,593,700 |
including interest (3,564,000 + 29,700) | |
Monthly payment (given) | 32,600 |
Amount owed after the first monthly payment | 3,561,100 |
(3,593,700 - 32,600) | |
Question 2 | |
The answer is Option 3: $ 2,000 Gain | |
Particulars | Amount (in $) |
Value of Bond | 500,000 |
Retirement value of bond (500,000 x 97%) | 485,000 |
Carrying Value of Bond (given) | 483,000 |
Gain on retirement (Retirement Value - Carrying Value) | 2,000 |
(485,000 - 483,000) |