Use the following information for questions 6 - 7. On January 1, 2020, Cotton Corp. issued eight-year, 3% bonds with a face value of $ 600,000, with interest payable semi-annually on June 30 and December 31. The bonds were sold to yield 4%. Table values are: Present value of 1 for 8 periods at 3% .789 Present value of 1 for 8 periods at 4% .731 Present value of 1 for 16 periods at 1.5% .788 Present value of 1 for 16 periods at 2% .728 Present value of annuity for 8 periods at 3% 7.020 Present value of annuity for 8 periods at 2% 7.325 Present value of annuity for 16 periods at 1.5% 14.131 Present value of annuity for 16 periods at 2% 13.578

6. The present value of the principal is a) $ 436,800. b) $ 438,600. c) $ 472,800. d) $ 473,400.

7. The present value of the interest is a) $ 122,202. b) $ 126,360. c) $ 127,179. d) $ 131,850.

8. On April 30, 2020, Canuck Oil Corp. purchased an oil tanker depot for $ 1,200,000 cash. The company expects to operate this depot for eight years, at which time they will be legally required to dismantle the structure and remove the underground storage tanks. Canuck Oil estimates this asset retirement obligation (ARO) will cost $ 200,000. Assuming a 5% discount rate, to the nearest dollar, the amount to be recorded as the ARO is

a) $ 25,000. b) $ 135,368. c) $ 150,000. d) $ 295,491.

Use the following information for questions 9 10. On April 1, 2020, Gamma Corp. purchases a call option for $ 500, which gives Gamma the right to buy 1,000 shares of Delta Inc. for $ 30 each until December 1, 2020. Delta Inc. shares are currently trading for $ 30. At June 30, 2020, the options are trading at $ 4,800 and the shares at $ 32 each. At December 1, 2020, the options expire with no value.

9. The time value of the option at April 1, 2020 is a) $ 0. b) $ 500. c) $ 4,800. d) $ 30,000.

10. At December 1, 2020, the options expire with no value. The entry to record the purchase of the call option is a) DerivativesFinancial Assets ............................................................ 500 Cash ............................................................................................... 500 b) Cash .................................................................................................... 500 DerivativesFinancial Assets ...................................................... 500 c) FV-NI Investments ............................................................................. 500 Cash ............................................................................................... 500 d) No entry required.