Question
8. On March 31, 2011, MDS, Inc.'s bondholders exchanged their convertible bonds for common stock. The carrying amount of these bonds on Ashley's books was
8. On March 31, 2011, MDS, Inc.'s bondholders exchanged their convertible bonds for
common stock. The carrying amount of these bonds on Ashley's books was less than the
fair value but greater than the par value of the common stock issued. If Ashley used the
book value method of accounting for the conversion, which of the following statements
correctly states an effect of this conversion?
a. Shareholders equity is increased
b. Additional-paid-in-capital is decreased
c. Retained earnings is increased
d. An extraordinary loss is recognized
9. Eagle Company issued ten-year bonds at 96 during the current year. In the year-end
financial statements, the discount should be:
a. Added to bonds payable
b. Included as an expense in the year of issue
c. Deducted from bonds payable
d. Reported as a deferred charge
10. Interest is NOT capitalized for:
a. Assets that are constructed as discrete projects for sale or lease
b. Assets constructed for a company
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