Question: 1. Suppose a company has an option to pay either
(a) $10,000 after one year or
(b) $5,000 after six months and another $5,000 after one year. Which choice has the lower present value?
2. On July 1, 2011, Jackson Company exercises a $5,000 call option (plus par value) on its outstanding bonds that have a carrying value of $208,000 and par value of $200,000. The company exercises the call option after the semiannual interest is paid on June 30, 2011. Record the entry to retire the bonds.