1. Panda co. has outstanding $100 million of 5% bonds, due in 7 years, and callable at 104. The bonds were issued at par and are selling today at market price of 92. If Panda Co. retires $10 million of these bonds by purchasing them from bondholders at a current market price, the company will report:
   1. An $800,000 gain
   2. A $400,000 loss
   3. An unrealized gain
   4. None of the above; neither gains nor losses are recognized on early retirements of debt
2. Madison Company issued $5,000,000 face value, 12%, 5-year bonds payable, on December 31, 2005. Interest is paid semiannually each June 30 and December 31. The bonds sell at a price of 97; Madison uses the straight-line method of amortizing bond discount or premium. Madisons entry at June 30, 2006, to record the first semiannual payment of interest and amortization of discount on the bonds includes a:
   1. Debit to bond interest expensed of $300,000
   2. Credit to cash of $315,000
   3. Debit to discount on bonds payable of $15,000
   4. Debit to bond interest expense of $315,000
3. The Jazz studio issues a contract to a new recording artist to produce a number of albums over the next five years at $1 million per album. This situation is an example of:
   1. A contingent liability which should be recorded in the accounting records
   2. A contingent liability requiring footnote disclosure
   3. An estimated liability, since the number of album to be produced is not yet determined.
   4. A commitment which, if material, may be disclosed in a footnote.