Question 1

Which statement is correct about the derecognition of a matured obligation?

Accepted Answer

A) There will be a gain on retirement. 
B) There will be a loss on retirement. 
C) There will be no gain or loss on retirement. 
D) There could be either a gain or loss on retirement. 
A) There will be a gain on retirement. 
B) There will be a loss on retirement. 
C) There will be no gain or loss on retirement. 
D) There could be either a gain or loss on retirement. C

Question 2

Sarah Braun is the owner of Sarah's Shameless Boutique Corp.(SSBC),a newly incorporated company.Sarah believes that she has a great concept but does not have a lot of money to start the business.Sarah is fairly resourceful,though,and has been able to arrange the following:
1.On July 1,2014,SSBC provides a vendor with a $18,500 non-interest-bearing note due on July 1,2015 in exchange for furniture with a list price of $18,100.Sarah Braun guarantees the debt.
2.On August 1,2014,SSBC buys a photocopier listed for $2,600.The office supply store agrees to accept a $800 down payment and a $2,100,three-year note payable at $798 per year including interest at 7% with the first payment due on August 1,2015.The loan is secured by a lien on the photocopier.
3.On September 1,2014,SSBC borrows $15,000 from its bank for working capital purposes.The loan,plus interest at 12% per annum,is due on June 30,2015.SSBC grants the bank a security interest in its accounts receivables and inventory.
Unfortunately,SSBC's target audience is a bit more prudish than she anticipated and sales have been slow.While the company was able to retire the bank loan on the due date,it had insufficient cash to pay off the furniture loan.The vendor agrees to accept 2,000 common shares in SSBC in settlement of the obligation.Sarah believed that the shares are worth $20 each,but as this was the first time that SSBC had issued shares to anyone other than Sarah,a fair market price was not yet established.
SSBC's year-end is June 30.The company's banker has suggested that an appropriate market rate for SSBC is 12% per annum for loans that mature in one year or less and 14% for loans with longer maturities.
Required:
a.Prepare journal entries to record:
   b.Briefly describe the note disclosure that would be required with respect to the foregoing liabilities.

Accepted Answer

a(i).The fair value of the note is determined using discounted cash flow analysis.The market rate suggested by the bank has been used to discount the obligation.List prices are not necessarily a reliable indicator of the asset's fair market value.• PV = $18,500 / 1.12 = $16,518 Using a BAII PLUS financial calculator • 1 N,12 I/Y,18500 FV,CPT PV PV = -16,518 (rounded)   a(ii).The fair value of the note is determined using discounted cash flow analysis as the interest rate in the note is less than the market rate.Using a BAII PLUS financial calculator • 3 N,14 I/Y,798 PMT,CPT PV PV = -1,853 (rounded)             b.SSBC disclosure relative to the outstanding liabilities would include: • that the liabilities are carried at amortized cost • details of the indebtedness including the collateral pledged • the fair value of each class of financial liability and how this was determined • total interest expense • a schedule that details the contractual maturity dates of financial liabilities • the nature and extent of risks arising from financial liabilities,including credit,liquidity,and market risk

Question 3

Really Amazing Vacations Ltd.issues $1,000,000 of ten-year,10% bonds dated January 1,2012.Interest is payable on January 1 and July 1 each year.The proceeds realized from the issue were the $1,048,801 sales price less the $80,000 fee charged by Really Amazing's investment bank.Really Amazing's year-end is December 31.
Requirement:
Prepare journal entries:
a.The issuance of the bonds.
b.Payment of interest and related amortization on July 1,2012.
c.Accrual of interest and related amortization on December 31,2012.

Accepted Answer

Determining the effective interest rate for the period using a BAII PLUS financial calculator • The net proceeds (PV)to Escape are $968,801 ($1,048,801 - $80,000); N = 20 (10 × 2); PMT = $50,000 ($1,000,000 × 10% × 6/12)• 20 N,968,801 +/- PV,1000000 FV,50000 PMT,CPT I/Y I/Y = 5.2558% (rounded)a.Journal entry on issuance (Jan.1,2012)   b.Journal entry on interest payment date (July 1,2012)   c.Journal entry at year-end (Dec.31,2012)

Question 4

Which statement is correct about offsetting?

Accepted Answer

A) Offsetting is required under IFRS when the entity is willing and legally able to offset. 
B) Offsetting is required under IFRS when the company intends to settle on a net basis. 
C) Offsetting is generally permitted under IFRS,unless it is specifically prohibited. 
D) Offsetting is required under IFRS when there is a legally enforceable right of offset. 
A) Offsetting is required under IFRS when the entity is willing and legally able to offset. 
B) Offsetting is required under IFRS when the company intends to settle on a net basis. 
C) Offsetting is generally permitted under IFRS,unless it is specifically prohibited. 
D) Offsetting is required under IFRS when there is a legally enforceable right of offset.

Question 5

On May 1,2012,Sea Escape Ltd.purchases a new automobile for $18,000 from the dealer who provides the financing.The three-year,interest-free loan is repayable at $500 per month.The market rate of interest for similar transactions is 0.25% per month.
Requirement:
Prepare journal entries to record:
a.the purchase of the automobile.
b.the accrual of interest and the loan payment at the end of May 2012.

Accepted Answer

a.The fair value of

Question 6

On May 1,2012,VeryFine LTD.provides a vendor with a $18,000 non-interest-bearing note due on May 1,2013 in exchange for furniture with a list price of $17,400.At what amount will the property be recorded in the accounting records? The company's banker has suggested that an appropriate market rate is 6% per annum for loans that mature in one year or less and 8% for loans with longer maturities.

Accepted Answer

A) $16,415 
B) $16,667 
C) $16,981 
D) $18,000 
A) $16,415 
B) $16,667 
C) $16,981 
D) $18,000

Question 7

When will bonds sell without a premium or discount?

Accepted Answer

A) When the coupon rate equals the par value. 
B) When the coupon rate is below the market rate. 
C) When the coupon rate is above the market rate. 
D) When the coupon rate is equal to the market rate. 
A) When the coupon rate equals the par value. 
B) When the coupon rate is below the market rate. 
C) When the coupon rate is above the market rate. 
D) When the coupon rate is equal to the market rate.

Question 8

Explain what an "in-substance defeasance" is and whether this arrangement results in the derecognition of a financial liability.

Accepted Answer

In-substance defeasance is an arrangemen

Question 9

Bold Accountants Co.sells $6,000,000 of 10-year,6% bonds priced to yield 5.5%.The bonds are dated and issued on January 1,2011.Interest is payable on January 1 and July 1 each year.Bold's year-end is June 30.
Requirement:
Prepare entries for
a.The issuance of the bonds.
b.Accrual of interest and related amortization on June 30,2011.
c.Payment of interest on July 1,2011.
d.Payment of interest and related amortization on January 1,2012.

Accepted Answer

Determining the effective interest rate

Question 10

Which statement is correct about the financial leverage of a company with an equity base of $400,000?

Accepted Answer

A) A company that borrows $150,000 is more leveraged than a company that borrows $250,000. 
B) A company that borrows $250,000 is more leveraged than a company that borrows $150,000. 
C) The return on equity of the company is unaffected by the financial leverage. 
D) The return on equity of the company will be higher if it has a lower leverage. 
A) A company that borrows $150,000 is more leveraged than a company that borrows $250,000. 
B) A company that borrows $250,000 is more leveraged than a company that borrows $150,000. 
C) The return on equity of the company is unaffected by the financial leverage. 
D) The return on equity of the company will be higher if it has a lower leverage.

Question 11

What are "callable bonds"?

Accepted Answer

A) Bonds that have cash flows indexed to inflation. 
B) Bonds that can be redeemed 1 year before maturity. 
C) Bonds that can be redeemed before maturity. 
D) Bonds that are sold at a premium. 
A) Bonds that have cash flows indexed to inflation. 
B) Bonds that can be redeemed 1 year before maturity. 
C) Bonds that can be redeemed before maturity. 
D) Bonds that are sold at a premium.

Question 12

What is the effective interest rate?

Accepted Answer

A) Yield on the issue date. 
B) Amount to be repaid at maturity. 
C) Rate of return earned by the investor. 
D) Interest rate specified in the bond indenture. 
A) Yield on the issue date. 
B) Amount to be repaid at maturity. 
C) Rate of return earned by the investor. 
D) Interest rate specified in the bond indenture.

Question 13

Which statement is correct about offsetting?

Accepted Answer

A) Offsetting generally provides decision-useful information for financial statement users. 
B) Offsetting aids in financial statement user's ability to correctly interpret financial results. 
C) Offsetting is generally prohibited under IFRS,unless it is specifically required. 
D) Offsetting is required under IFRS when there is a legally enforceable right of offset. 
A) Offsetting generally provides decision-useful information for financial statement users. 
B) Offsetting aids in financial statement user's ability to correctly interpret financial results. 
C) Offsetting is generally prohibited under IFRS,unless it is specifically required. 
D) Offsetting is required under IFRS when there is a legally enforceable right of offset.

Question 14

Canadian Sea Rides Ltd.issues $8,000,000 of four-year,4% bonds dated January 1,2011.Interest is payable on January 1 and July 1 each year.The proceeds realized from the issue were the $8,529,082 sales price less the $50,000 fee charged by Sea's lawyers.Sea's year-end is December 31.
Requirement:
Prepare entries for
a.The issuance of the bonds.
b.Payment of interest and related amortization on July 1,2011.
c.Accrual of interest and related amortization on December 31,2011.

Accepted Answer

Determining the effective interest rate

Question 15

Explain the meaning of financial leverage and leveraged buyout.

Accepted Answer

financial leverage: Quantifies the relat

Question 16

Cynthia Dixie Accounting Inc.takes advantage of a well-known office furnishings store's low-interest-rate financing.Cynthia buys furniture on the first day of its fiscal year,signing a $19,000,five-year note.The note is payable in full at maturity.Interest is payable annually at 2%.The market rate of interest for similar transactions is 5%.
Requirement:
Prepare journal entries to record:
a.The purchase of the office furniture.
b.The payment of interest and related amortization of the discount at the end of year 1.

Accepted Answer

a.The fair value of

Question 17

Canaroo Inc.sold $800,000 of two-year bonds for $701,500 less commissions of $50,500.Interest is of 5.5% is payable annually.What is the effective rate of interest (round to 2 decimal places)?

Accepted Answer

A) 5.50 % 
B) 8.43% 
C) 8.65% 
D) 17.29% 
A) 5.50 % 
B) 8.43% 
C) 8.65% 
D) 17.29%

Question 18

Which statement best explains a "leveraged buyout"?

Accepted Answer

A) A purchase where a small portion of the purchase price is raised by borrowing against the acquired assets. 
B) A purchase where a significant portion of the purchase price is raised by borrowing against the acquired assets. 
C) A purchase that is deemed too risky from a solvency perspective for the shareholders. 
D) A purchase that is deemed too risky from a solvency perspective for the bondholders. 
A) A purchase where a small portion of the purchase price is raised by borrowing against the acquired assets. 
B) A purchase where a significant portion of the purchase price is raised by borrowing against the acquired assets. 
C) A purchase that is deemed too risky from a solvency perspective for the shareholders. 
D) A purchase that is deemed too risky from a solvency perspective for the bondholders.

Question 19

Which statement best explains the concept of "leverage"?

Accepted Answer

A) A measure of the efficiency of the company. 
B) A measure of solvency of the company. 
C) A measure of the company's operations. 
D) A measure of the company's debt-paying ability. 
A) A measure of the efficiency of the company. 
B) A measure of solvency of the company. 
C) A measure of the company's operations. 
D) A measure of the company's debt-paying ability.

Question 20

On July 1,2014,Club Country Golf Corp.issued $20,000,000 of five-year,12%,semi-annual bonds for $20,075,000.At time of issue,Club Country paid its investment bank a $75,000 sales commission.On July 31,2017,Club Country calls $12,000,000 of the bonds,paying 104 plus accrued interest,and retires them.On March 31,2018,Club Country purchases the remaining bonds on the open market for $8,180,000 including accrued interest and retires them.Club Country's year-end is August 31.The company does not use reversing entries.
Requirements:
a.Prepare journal entries to record:
   b.Provide a brief explanation as to the most likely reasons that Club Country was able to repurchase its bonds at a discount.

Accepted Answer

a. @#IMG-DLM& @#IMG-DLM& @#IMG-DLM& @#IMG-DLM& b.The most likely reason why the

Which statement is correct about the derecognition of a matured obligation?

Which statement is correct about offsetting?

When will bonds sell without a premium or discount?

Explain what an "in-substance defeasance" is and whether this arrangement results in the derecognition of a financial liability.

Which statement is correct about the financial leverage of a company with an equity base of $400,000?

What are "callable bonds"?

What is the effective interest rate?

Which statement is correct about offsetting?

Explain the meaning of financial leverage and leveraged buyout.

Canaroo Inc.sold $800,000 of two-year bonds for $701,500 less commissions of $50,500.Interest is of 5.5% is payable annually.What is the effective rate of interest (round to 2 decimal places)?

Which statement best explains a "leveraged buyout"?

Which statement best explains the concept of "leverage"?

Current Liabilities and Contingencies

Equities

Complex Financial Instruments

Earnings Per Share

Accounting for Income Taxes

Pensions and Other Employee Future Benefits

Accounting for Leases

Statement of Cash Flows

Filters

Exam 12: Non-Current Financial Liabilities

Which statement is correct about the derecognition of a matured obligation?

Which statement is correct about offsetting?

When will bonds sell without a premium or discount?

Explain what an "in-substance defeasance" is and whether this arrangement results in the derecognition of a financial liability.

Which statement is correct about the financial leverage of a company with an equity base of $400,000?

What are "callable bonds"?

What is the effective interest rate?

Which statement is correct about offsetting?

Explain the meaning of financial leverage and leveraged buyout.

Canaroo Inc.sold $800,000 of two-year bonds for $701,500 less commissions of $50,500.Interest is of 5.5% is payable annually.What is the effective rate of interest (round to 2 decimal places)?

Which statement best explains a "leveraged buyout"?

Which statement best explains the concept of "leverage"?

Current Liabilities and Contingencies

Equities

Complex Financial Instruments

Earnings Per Share

Accounting for Income Taxes

Pensions and Other Employee Future Benefits

Accounting for Leases

Statement of Cash Flows

Filters