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75.     On January 1, 2007, Foley Co. sold 12% bonds with a face value of $600,000. The bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $646,200 to yield 10%. Using the effective-interest method of amortization, interest expense for 2007 is
a.     $60,000.
b.     $64,436.
c.     $64,620.
d.     $72,000.

     76.     On January 2, 2007, a calendar-year corporation sold 8% bonds with a face value of $600,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $553,600 to yield 10%. Using the effective-interest method of computing interest, how much should be charged to interest expense in 2007?
a.     $48,000.
b.     $55,360.
c.     $55,544.
d.     $60,000.
     77.     The December 31, 2006, balance sheet of Eddy Corporation includes the following items:
9% bonds payable due December 31, 2015     $1,000,000
Unamortized premium on bonds payable     27,000
The bonds were issued on December 31, 2005, at 103, with interest payable on July 1 and December 31 of each year. Eddy uses straight-line amortization. On March 1, 2007, Eddy retired $400,000 of these bonds at 98 plus accrued interest. What should Eddy record as a gain on retirement of these bonds? Ignore taxes.
a.     $18,800.
b.     $10,800.
c.     $18,600.
d.     $20,000.

     78.     On January 1, 2001, Gonzalez Corporation issued $4,500,000 of 10% ten-year bonds at 103. The bonds are callable at the option of Gonzalez at 105. Gonzalez has recorded amortization of the bond premium on the straight-line method (which was not materially different from the effective-interest method).
          On December 31, 2007, when the fair market value of the bonds was 96, Gonzalez repurchased $1,000,000 of the bonds in the open market at 96. Gonzalez has recorded interest and amortization for 2007. Ignoring income taxes and assuming that the gain is material, Gonzalez should report this reacquisition as
a.     a loss of $49,000.
b.     a gain of $49,000.
c.     a loss of $61,000.
d.     a gain of $61,000.

     79.     The 10% bonds payable of Klein Company had a net carrying amount of $570,000 on December 31, 2006. The bonds, which had a face value of $600,000, were issued at a discount to yield 12%. The amortization of the bond discount was recorded under the effective-interest method. Interest was paid on January 1 and July 1 of each year. On July 2, 2007, several years before their maturity, Klein retired the bonds at 102. The interest payment on July 1, 2007 was made as scheduled. What is the loss that Klein should record on the early retirement of the bonds on July 2, 2007? Ignore taxes.
a.     $12,000.
b.     $37,800.
c.     $33,600.
d.     $42,000.

     80.     A corporation called an outstanding bond obligation four years before maturity. At that time there was an unamortized discount of $300,000. To extinguish this debt, the company had to pay a call premium of $100,000. Ignoring income tax considerations, how should these amounts be treated for accounting purposes?
a.     Amortize $400,000 over four years.
b.     Charge $400,000 to a loss in the year of extinguishment.
c.     Charge $100,000 to a loss in the year of extinguishment and amortize $300,000 over four years.
d.     Either amortize $400,000 over four years or charge $400,000 to a loss immediately, whichever management selects.


     81.     The 12% bonds payable of Keane Co. had a carrying amount of $832,000 on December 31, 2006. The bonds, which had a face value of $800,000, were issued at a premium to yield 10%. Keane uses the effective-interest method of amortization. Interest is paid on June 30 and December 31. On June 30, 2007, several years before their maturity, Keane retired the bonds at 104 plus accrued interest. The loss on retirement, ignoring taxes, is
a.     $0.
b.     $6,400.
c.     $9,920.
d.     $32,000.

     82.     Axlon Company issues $10,000,000 face value of bonds at 96 on January 1, 2006. The bonds are dated January 1, 2006, pay interest semiannually at 8% on June 30 and December 31, and mature in 10 years. Straight-line amortization is used for discounts and premiums. On September 1, 2009, $6,000,000 of the bonds are called at 102 plus accrued interest. What gain or loss would be recognized on the called bonds on September 1, 2009?
a.     $600,000 loss
b.     $272,000 loss
c.     $360,000 loss
d.     $453,333 loss

     83.     Goebel Company issues $5,000,000 face value of bonds at 96 on January 1, 2006. The bonds are dated January 1, 2006, pay interest semiannually at 8% on June 30 and December 31, and mature in 10 years. Straight-line amortization is used for discounts and premiums. On September 1, 2009, $3,000,000 of the bonds are called at 102 plus accrued interest. What gain or loss would be recognized on the called bonds on September 1, 2009?
a.     $300,000 loss
b.     $136,000 loss
c.     $180,000 loss
d.     $226,667 loss

     84.     On January 1, 2007, Ann Rosen loaned $45,078 to Joe Grant. A zero-interest-bearing note (face amount, $60,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2009. The prevailing rate of interest for a loan of this type is 10%. The present value of $60,000 at 10% for three years is $45,078. What amount of interest income should Ms. Rosen recognize in 2007?
a.     $4,508.
b.     $6,000.
c.     $18,000.
d.     $13,524.

     85.     On January 1, 2007, Garner Company sold property to Agler Company which originally cost Garner $760,000. There was no established exchange price for this property. Agler gave Garner a $1,200,000 zero-interest-bearing note payable in three equal annual installments of $400,000 with the first payment due December 31, 2007. The note has no ready market. The prevailing rate of interest for a note of this type is 10%. The present value of a $1,200,000 note payable in three equal annual installments of $400,000 at a 10% rate of interest is $994,800. What is the amount of interest income that should be recognized by Garner in 2007, using the effective-interest method?

a.     $0.
b.     $40,000.
c.     $99,480.
d.     $120,000.

     86.     On January 1, 2007, Glenn Company sold property to Henry Company. There was no established exchange price for the property, and Henry gave Glenn a $2,000,000 zero-interest-bearing note payable in 5 equal annual installments of $400,000, with the first payment due December 31, 2007. The prevailing rate of interest for a note of this type is 9%. The present value of the note at 9% was $1,442,000 at January 1, 2007. What should be the balance of the Discount on Notes Payable account on the books of Henry at December 31, 2007 after adjusting entries are made, assuming that the effective-interest method is used?
a.     $0
b.     $428,220
c.     $446,400
d.     $558,000

     87.     Nyland Company’s 2007 financial statements contain the following selected data:
Income taxes     $40,000
Interest expense     20,000
Net income     60,000
          Nyland’s times interest earned for 2007 is
a.     3 times
b.     4 times.
c.     5 times.
d.     6 times.

Use the following information for questions *88 through *90:

On December 31, 2005, Reese Co. is in financial difficulty and cannot pay a note due that day. It is a $600,000 note with $60,000 accrued interest payable to Trear, Inc. Trear agrees to accept from Reese equipment that has a fair value of $290,000, an original cost of $480,000, and accumulated depreciation of $230,000. Trear also forgives the accrued interest, extends the maturity date to December 31, 2008, reduces the face amount of the note to $250,000, and reduces the interest rate to 6%, with interest payable at the end of each year.

     *88.     Reese should recognize a gain or loss on the transfer of the equipment of
a.     $0.
b.     $40,000 gain.
c.     $60,000 gain.
d.     $190,000 loss.

     *89.     Reese should recognize a gain on the partial settlement and restructure of the debt of
a.     $0.
b.     $15,000.
c.     $55,000.
d.     $75,000.


     *90.     Reese should record interest expense for 2008 of
a.     $0.
b.     $15,000.
c.     $30,000.
d.     $45,000.

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