Intermediate accounting 2 Practice Questions with 100% Correct Answers| Graded A+

Intermediate accounting 2 Practice Questions with 100% Correct Answers| Graded A+ For a liability to exist, - a past transaction or event must have occurred. Kenwood Co. neglected to amortize the premium on outstanding ten-year bonds payable. What is the effect of the failure to record premium amortization on interest expense and bond carrying value, respectively? - Overstate; overstate Bond discount should be presented in the financial statements of the issuer as a(n) - contra liability Any gains or losses from the early extinguishment of debt should be - recognized in income of the period of extinguishment. For a bond issue that sells for more than its face value, the market rate of interest is - less than the rate stated on the bond. When interest expense is calculated using the effective-interest amortization method, interest expense (assuming that interest is paid annually) always equals the - carrying value of the bonds multiplied by the effective interest rate. Accrued interest on bonds that are sold between interest dates - increases the amount a buyer must pay to acquire the bonds. Laker, Inc. had outstanding 10 percent, $1,000,000 face value, convertible bonds maturing on December 31, 2011. Interest is paid December 31 and June 30. After amortization through June 30, 2008, the unamortized balance in the bond premium account was $30,000. On that date, bonds with a face amount of $500,000 were converted into 20,000 shares of $20 par common stock. Recording the conversion by using the carrying value of the bonds, Laker should credit Paid-In Capital from conversion for - $115,000 Foster Corporation issued a $100,000, 10-year, 10 percent bond on January 1, 2007, for $112,000. Foster uses the straight-line method of amortization. On January 1, 2010, Foster reacquired the bonds for retirement when they were selling at 102 on the open market. How much gain or loss should Foster recognize on the retirement of the bonds? - $6,400 gain Scott Inc. neglected to amortize the discount on outstanding ten-year bonds payable. What is the effect of the failure to record discount amortization on interest expense and bond carrying value, respectively? - Understate; understate The effective-interest method of amortizing bond premiums - uses a constant rate of interest. The effective interest rate on bonds is lower than the stated rate when bonds sell - above face value. The net amount of a bond liability that appears on the balance sheet is the - face value of the bond plus related premium or minus related discount