Reference no: EM132539905

Question 1. Good Company filed a $900,000 law suit against Bad Company during Year One. At the end of Year One, both companies think that Good will probably win $200,000 but that a win of $370,000 is reasonably possible. In Year Two, the suit is settled with Bad paying $170,000 in cash to Good. What does each company recognize on its income statement for Year Two?

a. Good recognizes a gain or $170,000 and Bad recognizes a recovery (gain) of $30,000.

b. Good recognizes a loss of $30,000 and Bad recognizes a recovery (gain) of $30,000.

c. Good recognizes a gain of $170,000 and Bad recognizes a loss of $170,000.

d. Good recognizes a loss of $30,000 and Bad recognizes a loss of $170,000.

Question 2. On January 1, Year One, the Hogan Company issues a four year $100,000 term bond that pays an annual 6 percent cash interest. Interest is paid every 12/31 with the face value to be paid four years from the issuance date. The bond is issued to earn an actual annual rate of 10 percent. The present value of an ordinary annuity of $1 for four time periods at a 10 percent rate is 3.16. The present value of a single amount of $1 in four time periods at a 10 percent rate is .68. What interest expense should Hogan report on its Year Two income statement?

a. $6,000

b. $6,800

c. $7,070

d. $10,000

Question 3. On January 1, 2018, Always Company sold a machine in exchange for a non-interest bearing note requiring eight payments of P20,000. The first P20,000 was received on January 1, 2018 and the others are due annually on December 31 starting December 31, 2018. At date of issuance, the prevailing rate of interest for this type of note was 10%. Present value factors are as follows:

Annuity due of 1 at 10% for 8 periods 5.868

Ordinary annuity of 1 at 10% for 7 periods 4.868

PV of 1 at 10% for 8 periods 0.466

PV of 1 at 10% for 7 periods 0.513

The current portion of the note receivable to be reported in Always Company's December 31, 2018 balance sheet is:

a. 12,544

b. 11,290

c. 10,264

d. 8,264

Question 4. Mad Eye Moody has an agreement with the sales manager that he is to receive a bonus of 5% of net income after deduction of the bonus and income taxes. Mad Eye Company reported income before deduction of the bonus and income taxes of P1,500,000. Income taxes are 35% and the bonus is deductible for tax purposes. How much is the bonus?

a. 47,215

b. 50,388

c. 98,063

d. 48,750