Chapter 6 CPA
Study online at https://quizlet.com/_4gjvyd
1. C: 124. On January 1, 2017, Gore Co. sold to Cey Corp. $900,000 of its 10%
bonds for $796,766 to yield 12%. Interest is payable semiannually on January 1
and July 1. What amount should Gore report as interest expense for the six months
ended June 30, 2017?
a. $39,838
b. $45,000
c. $47,806
d. $54,000
2. D: 125. On May 1, 2017, a company purchased a new machine which it does not
have to pay for until May 1, 2019. The total payment on May 1, 2019 will include
both principal and interest. Assuming interest at a 10% rate, the cost of the machine
would be the total payment multiplied by what time value of money factor?
a. Future value of annuity of 1
b. Future value of 1
c. Present value of annuity of 1
d. Present value of 1
3. C: 126. On January 1, 2017, Ball Co. exchanged equipment for a $600,000
zero-interest-bearing note due on January 1, 2020. The prevailing rate of interest for
a note of this type at January 1, 2017 was 10%. The present value of $1 at 10% for
three periods is 0.75. What amount of interest revenue should be included in Ball's
2018 income statement?
a. $0
b. $45,000
c. $49,500
d. $60,000
4. A: 127. For which of the following transactions would the use of the present value
of an ordinary annuity concept be appropriate in calculating the present value of the
asset obtained or the liability owed at the date of incurrence?
a. A capital lease is entered into with the initial lease payment due one month
subsequent to the signing of the lease agreement.
b. A capital lease is entered into with the initial lease payment due upon the signing
of the lease agreement.
c. A ten-year 8% bond is issued on January 2 with interest payable semiannually on
January 2 and July 1 yielding 7%.
d. A ten-year 8% bond is issued on January 2 with interest payable semiannually on
January 2 and July 1 yielding 9%.
5. B: 128. On January 15, 2017, Dolan Corp. adopted a plan to accumulate funds
for environmental improvements beginning July 1, 2021, at an estimated cost of
$8,000,000. Dolan plans to make four equal annual deposits in a fund that will earn
1/3
Study online at https://quizlet.com/_4gjvyd
1. C: 124. On January 1, 2017, Gore Co. sold to Cey Corp. $900,000 of its 10%
bonds for $796,766 to yield 12%. Interest is payable semiannually on January 1
and July 1. What amount should Gore report as interest expense for the six months
ended June 30, 2017?
a. $39,838
b. $45,000
c. $47,806
d. $54,000
2. D: 125. On May 1, 2017, a company purchased a new machine which it does not
have to pay for until May 1, 2019. The total payment on May 1, 2019 will include
both principal and interest. Assuming interest at a 10% rate, the cost of the machine
would be the total payment multiplied by what time value of money factor?
a. Future value of annuity of 1
b. Future value of 1
c. Present value of annuity of 1
d. Present value of 1
3. C: 126. On January 1, 2017, Ball Co. exchanged equipment for a $600,000
zero-interest-bearing note due on January 1, 2020. The prevailing rate of interest for
a note of this type at January 1, 2017 was 10%. The present value of $1 at 10% for
three periods is 0.75. What amount of interest revenue should be included in Ball's
2018 income statement?
a. $0
b. $45,000
c. $49,500
d. $60,000
4. A: 127. For which of the following transactions would the use of the present value
of an ordinary annuity concept be appropriate in calculating the present value of the
asset obtained or the liability owed at the date of incurrence?
a. A capital lease is entered into with the initial lease payment due one month
subsequent to the signing of the lease agreement.
b. A capital lease is entered into with the initial lease payment due upon the signing
of the lease agreement.
c. A ten-year 8% bond is issued on January 2 with interest payable semiannually on
January 2 and July 1 yielding 7%.
d. A ten-year 8% bond is issued on January 2 with interest payable semiannually on
January 2 and July 1 yielding 9%.
5. B: 128. On January 15, 2017, Dolan Corp. adopted a plan to accumulate funds
for environmental improvements beginning July 1, 2021, at an estimated cost of
$8,000,000. Dolan plans to make four equal annual deposits in a fund that will earn
1/3
