This is an Intermidiate Accounting 2 Exam. I have 10 questions I would like for somebody to answer correct.

4) Big Red Enterprises issues 20-year, $1,000,000 bonds that pay semiannual interest of $40,000. If the market rate of interest is 10% annually, what is the issue price of the bonds? Some relevant and irrelevant present value factors:

a) $413,257

b) $828,409

c) $875,378

d) $1,000,000

5) On January 1, 2022, Cosmo Corp issued bonds with a face amount of $10,000 at par, and correctly recorded a DEBIT to Cash for $10,000 and a CREDIT to Bonds Payable for $10,000. The stated rate on the bonds is 8%, with semiannual payments due on June 30 and December 31 of each year. How much interest expense would Cosmo Corp record on June 30, 2022 for the first cash interest payment?

a) $384

b) $400

c) $800

d) Not determinable with facts given.

6) Best Bonds Co. (BBC) issued 4-year bonds on January 1, 2021. On that date, BBC's accountant correctly recorded a CREDIT to Bonds Payable for $200,000 and a DEBIT to Cash for $194,080. Based on these data, LPC issued the bonds:

a) At a premium.

b) At a discount.

c) At par.

d) Not determinable with facts given.

7) CS Corp. purchased a machine from AZ Corp on September 30, 2021. As consideration for the $288,000 purchase, CS Corp. issued a one-year installment note to be paid in equal monthly payments of $25,588 at the end of each month, with the first payment do October 31, 2021. The payments include interest at the rate of 12%. The amount of interest expense that CS Co. will report in its income statement for the year ended December 31, 2021, is:

a) $8,640

b) $7,956

c) $5,760

d) $5,533

8) True/False. Firms can elect to use the straight-line interest method for bond reporting only if:

a) the bonds are issued at par.

b) the bonds are issued at discount.

c) the amount of interested expense recognized would be greater than the effective-interest method.

d) None of the above.

9) On July 1, 2023, KPW Co. recorded a right-of-use equipment of $400,000 in connection with a 5-year noncancelable lease agreement. The lease stipulates that ownership will automatically transfer to KPW at lease-end. The fair value of the equipment is $415,000. The asset has an economic useful life of 8 years. KPW Co. uses straight-line depreciation for all fixed assets. KPW Co. has a December 31 accounting- year end. On December 31 of 2023, after all year-end adjusting journal entries are made, the balance of the right-of-use equipment will be:

a) $375,000

b) $360,000

c) $350,000

d) $320,000

10) On January 1 of 20X1, Lessor and Lessee sign a 3-year noncancelable lease for equipment. The equipment has a useful life of 3 years. Annual lease payments are $34,972, and the first lease payment is due on the lease commencement date; subsequent lease payments are due on December 31. The lease equipment cost the lessor $80,000. There is no purchase option, and the asset will revert back to the lessor at lease-end. The lease implicit interest rate is 5% and is known by the lessee. For similar financing arrangements, the lessee's incremental borrowing rate is 6%. Both companies use straight-line depreciation for fixed assets and have accounting year-ends of December 31. Based on this information, which of the following journal entries would the LESSEE record on the lease commencement date?

a) DR to Right-of-use Asset for $95,237

b) CR to Lease Liability for $93,481

c) DR to Right-of-use Asset for $100,000

d) DR to Right-of-use Asset for $102,378

11) Refer to the facts in #10. Based on the information, which of the following journal entries would the LESSOR record on the lease commencement date?

a) CR to Sales Revenue for $100,000

b) CR to Gross Profit for $20,000.

c) DR to Lease Receivable for $95,237

d) No journal entry because this is an operating lease.

12) Which of the following is FALSE?

a) Leasing reduces the upfront cash needed for placing fixed assets into service.

b) Leasing does not provide protection against the risk of declining asset values.

c) Leasing provides companies with more flexible and affordable options to dispose of assets.

d) Leasing provides companies with additional tax advantages relative to purchasing an asset.

13) Lessor Inc. sells computer systems. Lessor Inc. leases computers to Lone Star Company on January 1, 2021. The manufacturing cost of the computers was $18 million. The lease is cancelable and has the following terms:

• Lease payments: $2,466,754 semiannually; first payment at January 1, 2021; remaining payments at June 30 and December 31 each year through the end of 2025.
• No residual value; no purchase option.
• Economic life of equipment: five years.
• Implicit interest rate and lessee's incremental borrowing rate: 5% semiannually.
• Lessor Inc. would account for this as:

• a) An indirect-financing lease.
• b) A sales-type lease without selling profit.
• c) A sales-type lease with selling profit.
• d) An operating lease.

14) On January 1, 20X1, Lessee Inc. entered into a 4-year operating lease with Lessor Inc. and recorded a right-of-use asset for $348,685. The lease's implicit interest rate is 10%, and is known by Lessee Inc. Lease payments are $100,000, and the first lease payment is due on the lease commencement date, with subsequent lease payments due on December 31. The useful life of the equipment is five years. How much total lease-related expenses would Lessee Inc. record at the end of year 20X1?

• a) $ 94,600
• b) $100,000
• c) $200,000
• d) Not determinable with information given.