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On June 30, 1995, Corval Co, issued 15-year 12% bonds at a premium (effective yield 10%). On November 30, 1998, Corval transferred both cash and

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On June 30, 1995, Corval Co, issued 15-year 12% bonds at a premium (effective yield 10%). On November 30, 1998, Corval transferred both cash and property to the bondholders to extinguish the entire debt. The fair value of the transferred property equaled its carrying amount. The fair value of the cash and property transferred exceeded the bonds carrying amount. [Ignore income taxes.] Required: a. Explain the purpose of the effective interest method and the effect of applying the method in 1995 on Corval's bond premium b. What would have been the effect on 1995 interest expense, net income, and the carrying amount of the bonds if Corval had incorrectly adopted the straight-line method instead of the effective interest method? How should Corval calculate and report the effects of the November 30, 1998, transaction in its 1998 income statement? Why is this presentation appropriate? d. How should Corval report the effects of the November 30, 1998, transaction in its statement of cash flows using the indirect method? C

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