Sample CPA Exam Questions
1. On December 31, 2009, Moss Co. issued $1,000,000 of 11% bonds at 109. Each $1,000 bond was issued with 50 detachable stock warrants, each of which entitled the bondholder to purchase one share of $5 par common stock for $25. Immediately after issuance, the market value of each warrant was $4. On December 31, 2009, what amount should Moss record as discount or premium on issuance of bonds?
a. $40,000 premium
b. $90,000 premium
c. $110,000 discount
d. $200,000 discount
2. On July 31, 2009, Dome Co. issued $1,000,000 of 10%, 15 year bonds at par and used a portion of the proceeds to call its 600 outstanding 11%, $1,000 face value bonds, due on July 31, 2019, at 102. On that date, unamortized bond premium relating to the 11% bonds was $65,000. In its 2009 income statement, what amount should Dome report as gain or loss, before income taxes, from retirement of bonds?
a. $53,000 gain
b. $0
c. ($65,000) loss
d. ($75,000) loss