On October 1, 2014, Milton Company purchased to hold to maturity, 400, $1,000, 9
ID: 2446084 • Letter: O
Question
On October 1, 2014, Milton Company purchased to hold to maturity, 400, $1,000, 9% bonds for $416,000. An additional $12,000 was paid for accrued interest. Interest is paid semiannually on December 1 and June 1 and the bonds mature on December 1, 2018. Milton uses straight-line amortization. Ignoring income taxes, the amount reported in Milton's 2014 income statement from this investment should be
$9,000
$10,920
$8,040
None of these answers are correct
$9,960
2
When investments in debt securities are purchased between interest payment dates, preferably the
securities account should include accrued interest.
accrued interest is debited to Interest Expense.
accrued interest is debited to Interest Revenue.
accrued interest is debited to Interest Receivable.
None of these answers are correct
3
None of these answers are correct
$80,000 gain
$240,000 gain
$40,000 gain
$120,000 loss
4
On January 1, 2014, an interest payment date, $90,000 of A Company bonds were converted into 1,800 shares of A Company common stock each having a par value of $45 and a market value of $54. There is $3,600 unamortized discount on the bonds. Using the book value method, A Company would record
a $10,800 increase in paid-in capital in excess of par.
a $5,400 increase in paid-in capital in excess of par.
a $7,200 increase in paid-in capital in excess of par.
none of these answers are correct
no change in paid-in capital in excess of par.
5
$40,000 loss
$280,000 gain
None of these answers are correct
$160,000 gain
$40,000 gain
Explanation / Answer
Answer:1
$400,000 × .045) - ($16,000 × 3/50) - $12000 = $5040
Answer:2 accrued interest is debited to Interest Revenue.
Answer:3 $40,000 gain
$640,000 - $600,000 = $40,000 gain
Answer:4 $5,400 increase in paid-in capital in excess of par.
$90,000 – (1,800 × $45) – $3,600 = $5,400.
Journal entry:
Bonds Payable 90,000
Bond Discount 3,600
To Common Stock 81,000
To Paid-in Capital in Excess of Par - Common 5,400
Answer:5 $40,000 loss
$800,000 - $760,000 = $40,000 loss
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