Question

On January 1 of Year 1, Congo Express Airways issued $3,400,000 of 7% bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $3,100,000 and the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a rate of $10,000 every six months. After accruing interest at year end, the company's December 31, Year 1 balance sheet should reflect total liabilities associated with the bond issue in the amount of:

Multiple Choice

• $3,239,000.

• $3,001,000.

• $3,120,000.

• $3,799,000.

• $3,680,000.

On July 1, Shady Creek Resort borrowed $300,000 cash by signing a 10-year, 10.5% installment note requiring equal payments each June 30 of $49,877. What amount of interest expense will be included in the first annual payment?

Multiple Choice

• $30,000

• $49,877

• $281,623

• $31,500

• $18,377

A corporation issued 8% bonds with a par value of $1,120,000, receiving a $44,000 premium. On the interest date 5 years later, after the bond interest was paid and after 40% of the premium had been amortized, the corporation called the bonds at $1,108,800. The gain or loss on this retirement is:

Multiple Choice

• $11,200 loss.

• $37,600 gain.

• $11,200 gain.

• $37,600 loss.

• $0.

Mayan Company had net income of $33,670. The weighted-average common shares outstanding were 9,100. The company has no preferred stock. The company's earnings per share is:

Multiple Choice

• $5.00.

• $3.64.

• $3.76.

• $1.35.

• $3.70.

Answer 1

1
Bond issue price	3100000
Add: Discount amortized for 2 periods	20000	=10000*2
Carrying value of Bonds	3120000
Interest payable of Dec 31	119000	=3400000*7%/2
Total liabilities associated with the bond issue	3239000	=3120000+119000
Option A $3,239,000 is correct
2
Interest expense included in the first annual payment	31500	=300000*10.5%
Option D $31,500 is correct
3
Par value	1120000
Add: Premium unamortized	26400	=44000*60%
Carrying value of Bonds	1146400
Carrying value of Bonds	1146400
Less: Call price	1108800
Gain on this retirement	37600
Option B $37,600 gain is correct
4
Net income	33670
Divide by Weighted-average common shares outstanding	9100
Earnings per share	3.70
Option E $3.70 is correct