1. On June 30, 20X13, Adonis Co. had outstanding 4%, $4,000,000 face value bonds, originally issued at 98, maturing on June 30, 20X18. Interest was payable semiannually every June 30 and December 31. Adonis did not elect the fair value option for reporting its financial liabilities. On June 30, 20X13, after amortization was recorded for the period, the unamortized bond discount and bond issue costs were $40,000 and $30,000 respectively. On that date, Adonis acquired all its outstanding bonds on the open market at 97 and retired them. At June 30, 20X13, what amount should Adonis recognize as gain before income taxes on redemption of bonds?

a. 10,000

b. 50,000

c. 110,000

d. 130,000

2. Clio Co. issued 5-year $500,000 debenture bonds on January 2. The bonds pay interest semiannually. Clio uses the effective interest method to amortize bond premiums and discounts. The carrying value of the bonds on January 2 was $337,806. A journal entry was recorded for the first interest payment on June 30, debiting interest expense for $13,512 and crediting cash for $15,000. What is the annual stated interest rate for the debenture bonds?

a. 3%

b. 6%

c. 4%

d. 8%