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In 2000, May Corp. acquired land by paying $75,000 down and
signing a note with a maturity value of $1,000,000. On the note's
due date, December 31, 2005, May owed $40,000 of accrued
interest and $1,000,000 principal on the note. May was in
financial difficulty and was unable to make any payments. May
and the bank agreed to amend the note as follows: The $40,000 of
interest due on December 31, 2005 was forgiven. The principal of
the note was reduced from $1,000,000 to $950,000 and the
maturity date extended 1 year to December 31, 2006. May would
be required to make one interest payment totaling $30,000 on
December 31, 2006. As a result of the troubled debt restructuring,
May should report a gain, before taxes, in its 2005 income
statement of
Question 5
Universe Co. issued 500,000 shares of common stock in the
current year. Universe declared a 30% stock dividend. The
market value was $50 per share, the par value was $10, and the
average issue price was $30 per share. By what amount will
Universe decrease stockholders' equity for the dividend?
Question 6
On July 1, 2005, Day Co. received $103,288 for $100,000 face
amount, 12% bonds, a price that yields 10%. Interest expense for
the six months ended December 31, 2005 should be
Question 7
On July 1, 2005, Vail Corp. issued rights to stockholders to
subscribe to additional shares of its common stock. One right was
issued for each share owned. A stockholder could purchase one
additional share for 10 rights plus $15 cash. The rights expired on
September 30, 2005. On July 1, 2005, the market price of a share