Question 1

Bonds are required by GAAP to be reported on the balance sheet at market value.

Accepted Answer

A) True 
 B)False  False

Question 2

Hooker Company sells $200,000 of ten-year,8% bonds to yield 10% on January 1,2014.The bonds pay interest annually on December 31.The bonds were sold at a discount of $24,578.The amount of cash interest paid in 2015 is

Accepted Answer

A) $16,000. 
B) $18,000. 
C) $19,080. 
D) $20,000. 
A) $16,000. 
B) $18,000. 
C) $19,080. 
D) $20,000. A

Question 3

Which one of the following contingencies must be accrued on the balance sheet?

Accepted Answer

A) The likely loss on a lawsuit that the firm's attorneys believe will be dropped. 
B) The probable loss on a lawsuit that the firm's attorneys believe will be settled for $50,000. 
C) The reasonably possible loss on a lawsuit that the firm's attorneys believe will be dropped. 
D) The reasonably possible loss on a lawsuit that the firm's attorneys believe will be settled for $50,000. 
A) The likely loss on a lawsuit that the firm's attorneys believe will be dropped. 
B) The probable loss on a lawsuit that the firm's attorneys believe will be settled for $50,000. 
C) The reasonably possible loss on a lawsuit that the firm's attorneys believe will be dropped. 
D) The reasonably possible loss on a lawsuit that the firm's attorneys believe will be settled for $50,000. B

Question 4

The Ness Company sells $5,000,000 of five-year,10% bonds at the start of the year.The bonds have an effective yield of 9%.Present value factors are below: $$\begin{array} { l c c } 
& \underline { \mathbf { 1 0 } \% } & \underline { \mathbf { 9 \% } } \
\text { PV \$1 factor 1 year } & 0.90909 & 0.91743 \
\text { PV \$1 factor 2 years } & 0.82645 & 0.84168 \
\text { PV \$1 factor 3 years } & 0.75131 & 0.77218 \
\text { PV \$1 factor 4 years } & 0.68301 & 0.70843 \
\text { PV \$1 factor 5 years } & 0.62092 & 0.64993
\end{array}$$
The amount of cash interest paid in Year 1 on the bonds is

Accepted Answer

A) $450,000. 
B) $467,503. 
C) $500,000. 
D) $538,895. 
A) $450,000. 
B) $467,503. 
C) $500,000. 
D) $538,895.

Question 5

A current monetary liability is shown on the financial statements at the undiscounted amount due.

Accepted Answer

A) True 
 B)False

Question 6

Dot Company issued $200,000 of bonds on January 1,2014 with interest payable each year.The bonds had a stated rate of 8%.The bonds were set up as floating-rate debt with the rated pegged to LIBOR plus 3%.Which of the following will be the interest expense for year 1 if LIBOR is 5%?

Accepted Answer

A) $6,000 
B) $10,000 
C) $16,000 
D) $18,000 
A) $6,000 
B) $10,000 
C) $16,000 
D) $18,000

Question 7

Under IFRS,a classified balance sheet may list accounts in the following order: stockholders' equity,long-term liabilities,current liabilities.

Accepted Answer

A) True 
 B)False

Question 8

The gain or loss on the extinguishment of debt is usually categorized on the income statement as part of continuing operations.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements does not properly describe GAAP accounting for derivatives?

Accepted Answer

A) Derivatives are reported in the balance sheet at fair value. 
B) Speculative investments in derivative contracts can increase earnings volatility. 
C) Changes in the fair value of a derivative must be included in net income when they occur. 
D) A derivative's unrealized holding gain or loss for a particular year is not a component of that year's income from operations. 
A) Derivatives are reported in the balance sheet at fair value. 
B) Speculative investments in derivative contracts can increase earnings volatility. 
C) Changes in the fair value of a derivative must be included in net income when they occur. 
D) A derivative's unrealized holding gain or loss for a particular year is not a component of that year's income from operations.

Question 10

A debt-for-debt swap of debts with equal maturity values that occurs when the market rate of interest is higher than the stated rate of the old debt will give rise to a gain on debt extinguishments.

Accepted Answer

A) True 
 B)False

Question 11

A bond with a $750,000 maturity value is immediately retired for $745,000 plus accrued interest.The discount on bonds payable (bond discount)at the retirement date is $25,500.Which of the following statements is correct?

Accepted Answer

A) The gain on the debt extinguishment is $5,000. 
B) The loss on the debt extinguishment is $20,500. 
C) The gain on the debt extinguishment is $30,500. 
D) The gain or loss on the debt extinguishment can't be determined without knowing the dollar amount of the accrued interest. 
A) The gain on the debt extinguishment is $5,000. 
B) The loss on the debt extinguishment is $20,500. 
C) The gain on the debt extinguishment is $30,500. 
D) The gain or loss on the debt extinguishment can't be determined without knowing the dollar amount of the accrued interest.

Question 12

Investors need to review transactions involving swaps carefully to ensure that there is an underlying

Accepted Answer

A) loss. 
B) gain. 
C) rationale. 
D) economic benefit. 
A) loss. 
B) gain. 
C) rationale. 
D) economic benefit.

Question 13

Which of the following statements with respect to floating-rate debt is incorrect?

Accepted Answer

A) If the market rate of interest increases,the market value of the floating-rate debt will remain the same. 
B) If the market rate of interest decreases,the cash interest payment required by the issuing company would decrease. 
C) If the market rate of interest increases,the investors benefit while the issuing corporation does not benefit. 
D) If the market rate of interest decreases,both the issuing company and the investors benefit. 
A) If the market rate of interest increases,the market value of the floating-rate debt will remain the same. 
B) If the market rate of interest decreases,the cash interest payment required by the issuing company would decrease. 
C) If the market rate of interest increases,the investors benefit while the issuing corporation does not benefit. 
D) If the market rate of interest decreases,both the issuing company and the investors benefit.

Question 14

The Ness Company sells $5,000,000 of five-year,10% bonds at the start of the year.The bonds have an effective yield of 9%.Present value factors are below: $\begin{array}{lll}&10\%&9\%\
\text { PV \$1 factor 1 year } & 0.90909 & 0.91743 \
\text { PV \$1 factor 2 years } & 0.82645 & 0.84168 \
\text { PV \$1 factor 3 years } & 0.75131 & 0.77218 \
\text { PV \$1 factor 4 years } & 0.68301 & 0.70843 \
\text { PV \$1 factor 5 years } & 0.62092 & 0.64993
\end{array}$
The bond carrying value at the end of Year 2 is

Accepted Answer

A) $4,805,525. 
B) $5,000,000. 
C) $5,126,556. 
D) $5,194,475. 
A) $4,805,525. 
B) $5,000,000. 
C) $5,126,556. 
D) $5,194,475.

Question 15

The retirement of a bond which has a $250,000 maturity value and a $10,000 balance in premium on bonds payable (bond premium)creates a $15,000 gain if the bond is retired at a cost of $245,000.

Accepted Answer

A) True 
 B)False

Question 16

When bonds were initially sold at a discount,interest expense increases as the bonds reach maturity.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements does not accurately describe the accounting for derivatives?

Accepted Answer

A) The holding gain resulting from a fair value hedge that qualifies for hedge accounting is recognized in net income along with the offsetting loss on the hedged item. 
B) The holding loss resulting from a cash flow hedge that qualifies for hedge accounting is recognized in net income during the year of the loss. 
C) Management must be able to describe its hedging strategy in order to meet the GAAP criteria to qualify for hedge accounting. 
D) Derivatives that fail to meet the GAAP criteria for hedge accounting are accounted for as speculative investments. 
A) The holding gain resulting from a fair value hedge that qualifies for hedge accounting is recognized in net income along with the offsetting loss on the hedged item. 
B) The holding loss resulting from a cash flow hedge that qualifies for hedge accounting is recognized in net income during the year of the loss. 
C) Management must be able to describe its hedging strategy in order to meet the GAAP criteria to qualify for hedge accounting. 
D) Derivatives that fail to meet the GAAP criteria for hedge accounting are accounted for as speculative investments.

Question 18

A liability that is satisfied through the payment of cash is referred to as a denominational liability.

Accepted Answer

A) True 
 B)False

Question 19

On January 1,2015 when the effective interest rate was 12%,Philips Co.issued bonds with a maturity value of $200,000.The stated rate of interest is 12% and the bonds pay interest semi-annually.Philips Co.paid $2,000 in bond issue costs on this date.If Philips Co.uses IFRS,the effective interest rate will be

Accepted Answer

A) slightly lower than 12%. 
B) slightly higher than 12%. 
C) 12%. 
D) Cannot be determined based on the information provideD. 
A) slightly lower than 12%. 
B) slightly higher than 12%. 
C) 12%. 
D) Cannot be determined based on the information provideD.

Question 20

When the effective yield of a bond is the same as the stated rate on the bond,the bond is sold at

Accepted Answer

A) a discount. 
B) a premium. 
C) par. 
D) a price above par. 
A) a discount. 
B) a premium. 
C) par. 
D) a price above par.

Bonds are required by GAAP to be reported on the balance sheet at market value.

Hooker Company sells $200,000 of ten-year,8% bonds to yield 10% on January 1,2014.The bonds pay interest annually on December 31.The bonds were sold at a discount of $24,578.The amount of cash interest paid in 2015 is

Which one of the following contingencies must be accrued on the balance sheet?

A current monetary liability is shown on the financial statements at the undiscounted amount due.

Dot Company issued $200,000 of bonds on January 1,2014 with interest payable each year.The bonds had a stated rate of 8%.The bonds were set up as floating-rate debt with the rated pegged to LIBOR plus 3%.Which of the following will be the interest expense for year 1 if LIBOR is 5%?

Under IFRS,a classified balance sheet may list accounts in the following order: stockholders' equity,long-term liabilities,current liabilities.

The gain or loss on the extinguishment of debt is usually categorized on the income statement as part of continuing operations.

Which of the following statements does not properly describe GAAP accounting for derivatives?

A debt-for-debt swap of debts with equal maturity values that occurs when the market rate of interest is higher than the stated rate of the old debt will give rise to a gain on debt extinguishments.

A bond with a $750,000 maturity value is immediately retired for $745,000 plus accrued interest.The discount on bonds payable (bond discount)at the retirement date is $25,500.Which of the following statements is correct?

Investors need to review transactions involving swaps carefully to ensure that there is an underlying

Which of the following statements with respect to floating-rate debt is incorrect?

The retirement of a bond which has a $250,000 maturity value and a $10,000 balance in premium on bonds payable (bond premium)creates a $15,000 gain if the bond is retired at a cost of $245,000.

When bonds were initially sold at a discount,interest expense increases as the bonds reach maturity.

Which of the following statements does not accurately describe the accounting for derivatives?

A liability that is satisfied through the payment of cash is referred to as a denominational liability.

When the effective yield of a bond is the same as the stated rate on the bond,the bond is sold at

The Economic and Institutional Setting for Financial Reporting

Accrual Accounting and Income Determination

Additional Topics in Income Determination

Structure of the Balance Sheet and Statement of Cash Flows

Essentials of Financial Statement Analysis

The Role of Financial Information in Valuation and Credit Risk Assessment

The Role of Financial Information in Contracting

Receivables

Inventories

Long-Lived Assets

Financial Reporting for Leases

Income Tax Reporting

Pensions and Postretirement Benefits

Financial Reporting for Owners Equity

Intercorporate Equity Investments

Statement of Cash Flows

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Exam 11: Financial Instruments As Liabilities

Bonds are required by GAAP to be reported on the balance sheet at market value.

Hooker Company sells $200,000 of ten-year,8% bonds to yield 10% on January 1,2014.The bonds pay interest annually on December 31.The bonds were sold at a discount of $24,578.The amount of cash interest paid in 2015 is

Which one of the following contingencies must be accrued on the balance sheet?

A current monetary liability is shown on the financial statements at the undiscounted amount due.

Dot Company issued $200,000 of bonds on January 1,2014 with interest payable each year.The bonds had a stated rate of 8%.The bonds were set up as floating-rate debt with the rated pegged to LIBOR plus 3%.Which of the following will be the interest expense for year 1 if LIBOR is 5%?

Under IFRS,a classified balance sheet may list accounts in the following order: stockholders' equity,long-term liabilities,current liabilities.

The gain or loss on the extinguishment of debt is usually categorized on the income statement as part of continuing operations.

Which of the following statements does not properly describe GAAP accounting for derivatives?

A debt-for-debt swap of debts with equal maturity values that occurs when the market rate of interest is higher than the stated rate of the old debt will give rise to a gain on debt extinguishments.

A bond with a $750,000 maturity value is immediately retired for $745,000 plus accrued interest.The discount on bonds payable (bond discount)at the retirement date is $25,500.Which of the following statements is correct?

Investors need to review transactions involving swaps carefully to ensure that there is an underlying

Which of the following statements with respect to floating-rate debt is incorrect?

The retirement of a bond which has a $250,000 maturity value and a $10,000 balance in premium on bonds payable (bond premium)creates a $15,000 gain if the bond is retired at a cost of $245,000.

When bonds were initially sold at a discount,interest expense increases as the bonds reach maturity.

Which of the following statements does not accurately describe the accounting for derivatives?

A liability that is satisfied through the payment of cash is referred to as a denominational liability.

When the effective yield of a bond is the same as the stated rate on the bond,the bond is sold at

The Economic and Institutional Setting for Financial Reporting

Accrual Accounting and Income Determination

Additional Topics in Income Determination

Structure of the Balance Sheet and Statement of Cash Flows

Essentials of Financial Statement Analysis

The Role of Financial Information in Valuation and Credit Risk Assessment

The Role of Financial Information in Contracting

Receivables

Inventories

Long-Lived Assets

Financial Reporting for Leases

Income Tax Reporting

Pensions and Postretirement Benefits

Financial Reporting for Owners Equity

Intercorporate Equity Investments

Statement of Cash Flows

Filters