1. In 20X3, Krilynn was sued for producing duplos that decompose too quickly, with reports of some children coming back to their creations and instead finding piles of dirt. Krilynn is confident that a competitor, Natirk Inc. has been staging these cases for bad publicity. However, Krilynn estimates a loss of $3,000,000 could occur with a probability of 75%. What amount of a loss, if any, should Henry Paul recognize on the income statement?

A) $0

B) $3,000,000

C) $2,250,000

2. On January 1, 20X0, HPN PLC, issued bonds to finance the purchase of a new machine. The face value of the bonds is $10,000,000 with a stated interest rate of 5%. The market rate at issuance of the bond is 4.5%. The term of the bonds is 5 years. Interest is paid annually on December 31.

Were the bonds issued at par, discount, or premium?

A) Par

B) Discount

C) Premium

3. On January 1, 20X0, HPN PLC, issued bonds to finance the purchase of a new machine. The face value of the bonds is $10,000,000 with a stated interest rate of 5%. The market rate at issuance of the bond is 4.5%. The term of the bonds is 5 years. Interest is paid annually on December 31.

At the end of the second year, due to favorable changes in interest rates (rates have gone down to 4%), Henry Paul settles the bonds, paying the face value of $10,500,000 to retire the bonds.

Would the company recognize a gain or a loss on retirement of the bonds?

A) Gain

B) Loss

C) Neither