XYZ issues a $1,000,000 bond that matures in 5 years on January 1, 2012. The bond pays interest annually and has an interest rate of 6% and the market rate is 4%. 1. What is the issuing price of the bond? 2. What is the interest expense on December 31, 2012, using the straight-line method? 3. What is the interest expense on December 31, 2012, using the effective- interest method? 4. What is the amortization amount on December 31, 2012, using the effective-interest method? The following assets in Jack s business were sold in 2010: Asset Holding Period Gain/(Loss) Office Equipment Automobile 6 years 8 months $1,100 ($800) ABC Stock (capital asset) 2 years $1,400 The office equipment had a zero adjusted basis and was purchased for $8,000. The automobile was purchased for $2,000 and sold for $1,200. The ABC stock was purchased for $1,800 and sold for $3,200. In 2010 (the year of sale), Jack should report what amount of net capital gain and net ordinary income? a. $1,700 LTCG b. $600 LTCG and $300 ordinary gain c. $1,400 LTCG and $300 ordinary gain d. $2,500 LTCG and $800 ordinary loss e. None of the above During the year, Loon Corporation has the following transactions: $400,000 operating income; $325,000 operating expenses; $25,000 municipal bond interest; $60,000 long-term capital gain; and $95,000 short-term capital loss. a. Compute Loon s taxable income for the year. b. Assume the same facts except that Loon's long-term capital gain is $100,000 (instead of $60,000). Compute Loon's taxable income for the year.
XYZ issues a $1,000,000 bond that matures in 5 years on January 1, 2012. The bond pays interest annually and has an interest rate of 6% and the market rate is 4%. 1. What is the issuing price of the bond? 2. What is the interest expense on December 31, 2012, using the straight-line method? 3. What is the interest expense on December 31, 2012, using the effective- interest method? 4. What is the amortization amount on December 31, 2012, using the effective-interest method? The following assets in Jack s business were sold in 2010: Asset Holding Period Gain/(Loss) Office Equipment Automobile 6 years 8 months $1,100 ($800) ABC Stock (capital asset) 2 years $1,400 The office equipment had a zero adjusted basis and was purchased for $8,000. The automobile was purchased for $2,000 and sold for $1,200. The ABC stock was purchased for $1,800 and sold for $3,200. In 2010 (the year of sale), Jack should report what amount of net capital gain and net ordinary income? a. $1,700 LTCG b. $600 LTCG and $300 ordinary gain c. $1,400 LTCG and $300 ordinary gain d. $2,500 LTCG and $800 ordinary loss e. None of the above During the year, Loon Corporation has the following transactions: $400,000 operating income; $325,000 operating expenses; $25,000 municipal bond interest; $60,000 long-term capital gain; and $95,000 short-term capital loss. a. Compute Loon s taxable income for the year. b. Assume the same facts except that Loon's long-term capital gain is $100,000 (instead of $60,000). Compute Loon's taxable income for the year.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:XYZ issues a $1,000,000 bond that matures in 5 years on January 1, 2012. The
bond pays interest annually and has an interest rate of 6% and the market
rate is 4%.
1. What is the issuing price of the bond?
2. What is the interest expense on December 31, 2012, using the straight-line
method?
3. What is the interest expense on December 31, 2012, using the effective-
interest method?
4. What is the amortization amount on December 31, 2012, using the
effective-interest method?
The following assets in Jack s business were sold in 2010:
Asset
Holding Period Gain/(Loss)
Office Equipment
Automobile
6 years
8 months
$1,100
($800)
ABC Stock (capital asset) 2 years
$1,400
The office equipment had a zero adjusted basis and was purchased for $8,000. The automobile was
purchased for $2,000 and sold for $1,200. The ABC stock was purchased for $1,800 and sold for
$3,200. In 2010 (the year of sale), Jack should report what amount of net capital gain and net
ordinary income?
a. $1,700 LTCG
b. $600 LTCG and $300 ordinary gain
c. $1,400 LTCG and $300 ordinary gain
d. $2,500 LTCG and $800 ordinary loss
e. None of the above
During the year, Loon Corporation has the following
transactions: $400,000 operating income; $325,000 operating
expenses; $25,000 municipal bond interest; $60,000 long-term
capital gain; and $95,000 short-term capital loss.
a. Compute Loon s taxable income for the year.
b. Assume the same facts except that Loon's long-term capital
gain is $100,000 (instead of $60,000). Compute Loon's taxable
income for the year.
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