Which of the following statements characterizes convertible debt under U.S. GAAP?
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1 .On January 2, Year 1, Nast Co. issued 8% bonds with a face amount of USD1,000,000 that mature on January 2, Year 7. The bonds were issued to yield 12%, resulting in a discount of USD150,000. Nast incorrectly used the straight-line method instead of the effective interest method to amortize the discount. How is the carrying amount of the bonds affected by the error?
A At December 31, Year 1Overstated;At January 2, Year 7Understated B At December 31, Year 1Understated;At January 2, Year 7No effect C At December 31, Year 1Overstated;At January 2, Year 7No effect D At December 31, Year 1Understated;At January 2, Year 7Overstated
2 .On January 31, Year 2, Beau Corp. issued USD300,000 maturity value, 12% bonds for USD300,000 cash. The bonds are dated December 31, Year 1, and mature on December 31, Year 11. Interest will be paid semi-annually on June 30 and December 31. What amount of accrued interest payable should Beau report in its September 30, Year 2 balance sheet?
A USD24,000 B USD9,000 C USD18,000 D USD27,000
3 .On March 1, Year 1, Evan Corp. issued USD500,000 10% nonconvertible bonds at 103, due on February 28, Year 11. Each USD1,000 bond was issued with 30 detachable stock warrants, each of which entitled the holder to purchase, for USD50, one share of Evan's USD25 par common stock. On March 1, Year 1, the market price of each warrant was USD4. By what amount should the bond issue proceeds increase stockholders' equity?
A USD45,000 B USD60,000 C USD0 D USD15,000
4 .On April 1, Year 1, Saxe, Inc. purchased USD200,000 face value, 9% U.S. Treasury Notes for USD198,500, including accrued interest of USD4,500. The notes mature July 1, Year 2, and pay interest semiannually on January 1 and July 1. Saxe uses the straight-line method of amortization. The notes were sold on December 1, Year 1 for USD206,500, including accrued interest of USD7,500. In its October 31, Year 1 balance sheet, the carrying amount of this investment should be:
A USD197,200 B USD196,800 C USD199,000 D USD194,000
5 .What type of bonds in a particular bond issuance will not all mature on the same date?
A Term bonds. B Debenture bonds. C Serial bonds. D Sinking fund bonds.
7 .On January 1, a company issued a USD50,000 face value, 8% five-year bond for USD46,139 that will yield 10%. Interest is payable on June 30 and December 31. What is the bond carrying amount on December 31 of the current year?
A USD46,446 B USD46,768 C USD46,139 D USD47,106
8 .Blue Co. issued preferred stock with detachable common stock warrants at a price which exceeded both the par value and the market value of the preferred stock. At the time the warrants are exercised, Blue's total stockholders' equity is increased by the: Cash received upon exercise of the warrants Carrying amount of warrants
A Cash received upon exercise of the warrants No Carrying amount of warrants No B Cash received upon exercise of the warrants No Carrying amount of warrants Yes C Cash received upon exercise of the warrants Yes Carrying amount of warrants No D Cash received upon exercise of the warrants Yes Carrying...
9 .In open market transactions, Gold Corp. simultaneously sold its long-term investment in Iron Corp. bonds and purchased its own outstanding bonds. The purchase of its own bonds is a material unusual and infrequent event for Gold Corp. The broker remitted the net cash from the two transactions. Gold's gain on the purchase of its own bonds exceeded its loss on the sale of the Iron bonds. Gold should report the:
A Effect of its own bond transaction gain in income before extraordinary items, and report the Iron bond transaction as an extraordinary loss. B Net effect of the two transactions as an extraordinary gain. C Effect of its own bond transaction as an extraordinary gain, and report the Iron bond transa...
10 .On December 31, Year 1, Todd Corporation issued 500 of its 10%, USD1,000 bonds at 105. Todd Corporation uses IFRS. The bonds were issued through an underwriter to whom Todd paid bond issue costs of USD15,000. On the December 31, Year 1 balance sheet, Todd should report the bond liability at:
A USD525,000 B USD515,000 C USD510,000 D USD500,000
