Assume that Wambach, Inc., had two types of gains: one ordinary (GAIN) and thus
ID: 2548068 • Letter: A
Question
Assume that Wambach, Inc., had two types of gains: one ordinary (GAIN) and thus reflected in net income and one gain that received other comprehensive income treatment (OCIGAIN). Which of the following statements is true?
Under which set of rules is a lease liability reported for an operating lease over one year in length?
On January 1, Year 1, Worthy Co. issued $1,000,000 of bonds payable. The bonds mature in five years on December 31, Year 5, and pay 9% interest once a year on December 31. The issue sold for $891,857 to yield 12%. Assume that Worthy has not chosen the fair value option, interest rates decrease during the period, and Worthy pays off the bond at maturity. Which of the following is true?
c. Worthy will report a loss on retirement in Year 5.
On January 1, Year 1, Worthy Co. issued $1,000,000 of bonds payable. The bonds mature in five years on December 31, Year 5, and pay 9% interest once a year on December 31. The issue sold for $891,857 to yield 12%. Worthy uses the effective interest method. Assume that the bond's fair value is $940,000 at December 31, Year 3, and its book value is $949,298. If Worthy chooses the fair value option, it will report:
a. GAIN and OCIGAIN are both part of comprehensive income. b. GAIN is not a part of comprehensive income, but OCIGAIN is a part of comprehensive income. c. OCIGAIN is not a part of shareholders' equity, but GAIN is a part of shareholders' equity. d. GAIN and OCIGAIN are both part of retained earnings.Under which set of rules is a lease liability reported for an operating lease over one year in length?
a. Under neither the old nor the new leasing rules b. Under both the old and the new leasing rules c. Only under the old leasing rules d. Only under the new leasing rulesOn January 1, Year 1, Worthy Co. issued $1,000,000 of bonds payable. The bonds mature in five years on December 31, Year 5, and pay 9% interest once a year on December 31. The issue sold for $891,857 to yield 12%. Assume that Worthy has not chosen the fair value option, interest rates decrease during the period, and Worthy pays off the bond at maturity. Which of the following is true?
a. Worthy will report a gain on retirement in Year 5. b. Worthy will report no gain or loss on retirement in Year 5.c. Worthy will report a loss on retirement in Year 5.
On January 1, Year 1, Worthy Co. issued $1,000,000 of bonds payable. The bonds mature in five years on December 31, Year 5, and pay 9% interest once a year on December 31. The issue sold for $891,857 to yield 12%. Worthy uses the effective interest method. Assume that the bond's fair value is $940,000 at December 31, Year 3, and its book value is $949,298. If Worthy chooses the fair value option, it will report:
a. no gain or loss on its income statement. b. a loss on its income statement. c. again on its income statement.Explanation / Answer
Answer 1:
Explanation: Comprehensive income, includes
the following: all revenues and gains, expenses and losses reported
in net income, and all gains and losses that bypass net income but affect stockholders’
equity.Therefore,
Statement a is correct as both GAIN and OCIGAIN are part of comprehensive income.
Statement b is incorrect as GAIN is also part of comprehensive income.
Statement c is incorrect as
Statement d is incorrect as only gain is part of retained earning.
Answer2
Explation: As per new leasing rules a lease liability reported for an operating lease over one year in length.
Answer d Only under new leasing rules
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