On January 2, 1994, Nast Co, issued 8% bonds with a face amount of $1,000,000 that mature on January 2, 2000. The bonds were issued to yield 12%, resulting in a discount of $150,000. Nast incorrectly used the straight-line method instead of the effective interest method to amortize the discount. How is the carrying amount of the bonds affected by the error? At At December 31, 2001 January 2, 2007 a. Overstated Understated b. Overstated No effect c. Understated Overstated d. Understated No effect On January 1, 2001, Oak Co. issued 400 of its 8%, $1,000 bonds at 97 plus accrued interest. The bonds are dated October 1, 2000, and mature on October 1, 2010. Interest is payable semiannually on April 1 and October 1. Accrued interest for the period October 1, 2000, to January 1, 2001, amounted to $8,000. On January 1, 2001, what amount should Oak report as bonds payable, net of discount? a. $380,300 b. $388,000. c. $388,300 d. $392,000. . Dunn Trading Stamp Co. records stamp service uvenue and provides for the cost of redemptions in the year stamps are sold to licensees. Dunn's past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Dunn's liability for stamp redemptions was $6,000,000 at December 31, 1995. Additional information for 1996 is as follows: $4,000,000 Stamp service revenue from stamps sold to licensees Cost of redemptions (stamps sold prior to 1/1/96) 2,750,000 If all the stamps sold in 1996 were presented for redemption in 1997, the redemption cost would be $2,250,000. What amount should Dunn report as a liability for stamp redemptions at December 31, 1996? a. $7,250,000 b. $5,500,000 c. $5,050,000 d. $3,250,000 On January 2, 1994, Nast Co, issued 8% bonds with a face amount of $1,000,000 that mature on January 2, 2000. The bonds were issued to yield 12%, resulting in a discount of $150,000. Nast incorrectly used the straight-line method instead of the effective interest method to amortize the discount. How is the carrying amount of the bonds affected by the error? At At December 31, 2001 January 2, 2007 a. Overstated Understated b. Overstated No effect c. Understated Overstated d. Understated No effect On January 1, 2001, Oak Co. issued 400 of its 8%, $1,000 bonds at 97 plus accrued interest. The bonds are dated October 1, 2000, and mature on October 1, 2010. Interest is payable semiannually on April 1 and October 1. Accrued interest for the period October 1, 2000, to January 1, 2001, amounted to $8,000. On January 1, 2001, what amount should Oak report as bonds payable, net of discount? a. $380,300 b. $388,000. c. $388,300 d. $392,000. . Dunn Trading Stamp Co. records stamp service uvenue and provides for the cost of redemptions in the year stamps are sold to licensees. Dunn's past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Dunn's liability for stamp redemptions was $6,000,000 at December 31, 1995. Additional information for 1996 is as follows: $4,000,000 Stamp service revenue from stamps sold to licensees Cost of redemptions (stamps sold prior to 1/1/96) 2,750,000 If all the stamps sold in 1996 were presented for redemption in 1997, the redemption cost would be $2,250,000. What amount should Dunn report as a liability for stamp redemptions at December 31, 1996? a. $7,250,000 b. $5,500,000 c. $5,050,000 d. $3,250,000
