Question 1 -- /2 On January 1, 2020, Rainbow Corporation acquired as long-term investment $600,000 of 8% bonds, dated January 1. Company is holding the bonds in its trading portfolio. The market interest rate (yield) was 9% for bonds of similar risk and maturity. Wolf paid $560,975 for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, 2020, was $580,000. What is the amount related to the bonds that Rainbow will report in its statement of cash flows for the year ended December 31, 2020? (1) Operating activities outflow, $(512,975). (2) Investing activities outflow, $(628,000). Operating activities inflow, $50,544; investing activities outflow, $(600,000). Operating activities inflow, $48,000; investing activities outflow, $(560,975). Question 2 ( --/2) On January 1, 2020, Esquire Airlines leased a jumbo jet from Tiger Corporation. The terms of the lease require Esquire to make 20 annual payments of $500,000 on each January 1. Generally accepted accounting principles require this lease to be recorded as a liability for the present value of scheduled payments. Assume that a 5% interest rate properly reflects the time value of money in this situation. At what amount should Esquire record the lease liability on January 1, 2020, before any payments are made, assuming that the first payment will be made on January 1, 2020? 1 $5,875,780. (2) $6,231,105. $6,542,660. $7,840,288. Question 3 -- 72 Santana Industries purchased a supply of electronic components from ABC Corporation on October 1, 2020. In payment for the $5 million purchase, Santana issued a 1-year installment note to be paid in equal monthly payments at the end of each month. The payments include interest at the rate of 12%. What is the amount of interest expense that Santana will report in its income statement for the year ended December 31, 2020? (1 $150,000 (2) $144,395. 3 $138,134. (4) $128,864. Question 4 -- /2 Jasmine Company sold $1,000,000 of 6%, 10-year bonds at 97 on January 1, 2020. The bonds were dated January 1, 2020 and pay interest on June 30 and December 31. Jasmine paid $50,000 in bond issue costs. If Jasmine uses the straight-line amortization, the amount of interest expense for year 2020 would be: $50,000. (2) $52,000. $60,000 (4) $68,000 Question 5 -- /2 The long-term liability section of Grandview Corporation's balance sheet as of December 31, 2019, included 8% bonds having a face amount of $1,000,000 and a remaining discount of $155,921. Disclosure notes indicate the bonds were issued to yield 10%. Interest expense is recorded at the effective interest rate and paid on January 1 and July 1 of each year. On July 1, 2020, Grandview retired the bonds at 102 before their scheduled maturity. What is the amount of gain (loss) on early extinguishment of bonds? 0 $(173,717) (2) $(155,884) (3) $(134,305) 4 $155,884
