Question 1 - Partnership A advances $1 million to Corporation B to perform research and development. The terms of the agreement specify that B must repay the funds upon successful completion of the project.

Partnership A accounts for the $1 million as 

A. Advances on contract.

 B. Accounts receivable.

 C. Deferred research and development costs.

 D. Research and development expense.

Question 2 - On January 2, Year 4, Nast Co. issued 8% bonds with a face amount of $1 million that mature on January 2, Year 10. The bonds were issued to yield 12%, resulting in a discount of $150,000. Nast incorrectly used the straight-line method instead of the effective-interest method to amortize the discount. How is the carrying amount of the bonds affected by the error? 

At Dec. 31, Year 4At Jan. 2, Year 10

A. Overstated

No effect

B. Understated

No effect

 C. Understated

Overstated

 D. Overstated

Understated