12a)

Skylar Company issued $50,000,000 of its 10% bonds at par on January 1, 2019. On December 31, 2019, the bonds were trading on the bond exchange at 98 (98% of face value). What happened to the market rate of interest between the issue date and the end of the year?

Choose the right answer below?

1. The market rate increased.
2. The market rate decreased.
3. The change in the market rate cannot be determined.
4. The market rate stayed the same.

12b)

Cartwell Corp. had $80 million in pretax accounting income this year. This included estimated warranty expense of $5 million, which is not deductible for tax purposes. Instead, Cartwell may deduct $4 million of actual warranty costs on its tax return. There were no other temporary or permanent book-tax differences. What is Cartwells taxable income for the year?

Choose the right answer below?

1. $81 million
2. $71 million
3. $79 million
4. $89 million