Question 1

All derivatives must be carried on the balance sheet at historical cost.

Accepted Answer

A) True 
 B)False

Question 2

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: $\begin{array}{lll}& \underline { \mathbf { 1 0 } \% } & \underline { \mathbf { 9 \% } } \
\text { PV \$1 factor 1 year } & 0.90909 & 0.91743 \
\text { PV \$1 factor 2 years } & 0.82645 & 0.84168 \
\text { PV \$1 factor 3 years } & 0.75131 & 0.77218 \
\text { PV \$1 factor 4 years } & 0.68301 & 0.70843 \
\text { PV \$1 factor 5 years } & 0.62092 & 0.64993
\end{array}$
The amount of bond premium amortization for Year 2 is

Accepted Answer

A) $32,497. 
B) $35,422. 
C) $38,895. 
D) $50,000. 
A) $32,497. 
B) $35,422. 
C) $38,895. 
D) $50,000.

Question 3

Losses must be accrued if they are

Accepted Answer

A) remote and estimable. 
B) reasonably possible and estimable. 
C) probable and reasonably estimable. 
D) probable and not estimable. 
A) remote and estimable. 
B) reasonably possible and estimable. 
C) probable and reasonably estimable. 
D) probable and not estimable.

Question 4

A contingent liability that is probable and can be reasonably estimated will immediately result in

Accepted Answer

A) an increase in both liabilities and stockholders' equity. 
B) an increase in liabilities and a decrease in net income. 
C) an increase in liabilities without any need for financial statement disclosure. 
D) an increase in liabilities and a decrease in assets. 
A) an increase in both liabilities and stockholders' equity. 
B) an increase in liabilities and a decrease in net income. 
C) an increase in liabilities without any need for financial statement disclosure. 
D) an increase in liabilities and a decrease in assets.

Question 5

As a bond matures,annual amortization of premium on bonds payable (bond premium)increases while annual interest expense decreases.

Accepted Answer

A) True 
 B)False

Question 6

Net income for a particular time period will be understated if a bond issuer fails to amortize premium on bonds payable (bond premium)during that time period.

Accepted Answer

A) True 
 B)False

Question 7

The price charged for the privilege of delaying payment on a liability is interest.

Accepted Answer

A) True 
 B)False

Question 8

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 bond carrying value at the end of Year 1 is

Accepted Answer

A) $4,500,000. 
B) $5,000,000. 
C) $5,126,556. 
D) $5,161,978. 
A) $4,500,000. 
B) $5,000,000. 
C) $5,126,556. 
D) $5,161,978.

Question 9

When the market rate of interest is below the nominal rate,a bond sells at stated value.

Accepted Answer

A) True 
 B)False

Question 10

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 bond interest expense for 2014 is

Accepted Answer

A) $16,000. 
B) $17,542. 
C) $20,000. 
D) $21,542. 
A) $16,000. 
B) $17,542. 
C) $20,000. 
D) $21,542.

Question 11

On December 1,2014 a company bought a call option costing $100,000 as a speculative investment.The call option gave the company the right to purchase 100,000 barrels of oil for $110 per barrel during April 2015.As of December 31,2014 the call option had a value of $125,000.The company liquidated the call option on April 15,2015 in exchange for $175,000.Which of the following accurately describes GAAP accounting for this call option?

Accepted Answer

A) The realized gain applicable to the year ending December 31,2014 is $25,000. 
B) The realized gain recognized on April 15,2015 is $75,000. 
C) The unrealized gain recognized on April 15,2015 is $50,000. 
D) The call option will be reported on the December 31,2014 balance sheet at $125,000 and a $25,000 unrealized gain will be reported as a component of income from continuing operations for the year ending December 31,2014. 
A) The realized gain applicable to the year ending December 31,2014 is $25,000. 
B) The realized gain recognized on April 15,2015 is $75,000. 
C) The unrealized gain recognized on April 15,2015 is $50,000. 
D) The call option will be reported on the December 31,2014 balance sheet at $125,000 and a $25,000 unrealized gain will be reported as a component of income from continuing operations for the year ending December 31,2014.

Question 12

Which of the following statements is correct?

Accepted Answer

A) Amortization of discount on bonds payable (bond discount)results in an increase in a bond's carrying value. 
B) Amortization of discount on bonds payable (bond discount)results in a decrease in bond interest expense. 
C) Amortization of premium on bonds payable (bond premium)results in an increase in a bond's carrying value. 
D) Amortization of premium on bonds payable (bond premium)results in an increase in bond interest expense. 
A) Amortization of discount on bonds payable (bond discount)results in an increase in a bond's carrying value. 
B) Amortization of discount on bonds payable (bond discount)results in a decrease in bond interest expense. 
C) Amortization of premium on bonds payable (bond premium)results in an increase in a bond's carrying value. 
D) Amortization of premium on bonds payable (bond premium)results in an increase in bond interest expense.

Question 13

A lender can effectively convert a fixed-rate debt into a floating-rate debt by using an interest rate swap.

Accepted Answer

A) True 
 B)False

Question 14

A derivative instrument that gives the holder the right but not the obligation to do something is a/an

Accepted Answer

A) future contract. 
B) swap contract. 
C) performance contract. 
D) options contract. 
A) future contract. 
B) swap contract. 
C) performance contract. 
D) options contract.

Question 15

When interest rates have increased and bonds are retired before maturity,market value is

Accepted Answer

A) below book value generating an accounting gain. 
B) below book value generating an accounting loss. 
C) above book value generating an accounting gain. 
D) above book value generating an accounting loss. 
A) below book value generating an accounting gain. 
B) below book value generating an accounting loss. 
C) above book value generating an accounting gain. 
D) above book value generating an accounting loss.

Question 16

Losses must be disclosed if they are

Accepted Answer

A) remote and estimable. 
B) reasonably possible and estimable. 
C) probable and reasonably estimable. 
D) reasonably possible but not estimable. 
A) remote and estimable. 
B) reasonably possible and estimable. 
C) probable and reasonably estimable. 
D) reasonably possible but not estimable.

Question 17

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.Under IFRS the bonds will be recorded on the January 1,2015 balance sheet of Philips Co.at

Accepted Answer

A) $200,000. 
B) $202,000. 
C) $198,000. 
D) Cannot be determined based on the information provideD. 
A) $200,000. 
B) $202,000. 
C) $198,000. 
D) Cannot be determined based on the information provideD.

Question 18

A probable future sacrifice of an economic benefit arising from a present obligation to transfer assets or provide services to other entities in the future as a result of a past transaction is a/an

Accepted Answer

A) asset. 
B) liability. 
C) equity. 
D) expense. 
A) asset. 
B) liability. 
C) equity. 
D) expense.

Question 19

Changes in the fair value of all derivatives other than hedges must be recognized in income when they occur.

Accepted Answer

A) True 
 B)False

Question 20

Annual amortization of discount on bonds payable (bond discount)results in an increase in interest expense and the bond's carrying value.

Accepted Answer

A) True 
 B)False

All derivatives must be carried on the balance sheet at historical cost.

Losses must be accrued if they are

A contingent liability that is probable and can be reasonably estimated will immediately result in

As a bond matures,annual amortization of premium on bonds payable (bond premium)increases while annual interest expense decreases.

Net income for a particular time period will be understated if a bond issuer fails to amortize premium on bonds payable (bond premium)during that time period.

The price charged for the privilege of delaying payment on a liability is interest.

When the market rate of interest is below the nominal rate,a bond sells at stated 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 bond interest expense for 2014 is

Which of the following statements is correct?

A lender can effectively convert a fixed-rate debt into a floating-rate debt by using an interest rate swap.

A derivative instrument that gives the holder the right but not the obligation to do something is a/an

When interest rates have increased and bonds are retired before maturity,market value is

Losses must be disclosed if they are

A probable future sacrifice of an economic benefit arising from a present obligation to transfer assets or provide services to other entities in the future as a result of a past transaction is a/an

Changes in the fair value of all derivatives other than hedges must be recognized in income when they occur.

Annual amortization of discount on bonds payable (bond discount)results in an increase in interest expense and the bond's carrying value.

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

Exam 11: Financial Instruments As Liabilities

All derivatives must be carried on the balance sheet at historical cost.

Losses must be accrued if they are

A contingent liability that is probable and can be reasonably estimated will immediately result in

As a bond matures,annual amortization of premium on bonds payable (bond premium)increases while annual interest expense decreases.

Net income for a particular time period will be understated if a bond issuer fails to amortize premium on bonds payable (bond premium)during that time period.

The price charged for the privilege of delaying payment on a liability is interest.

When the market rate of interest is below the nominal rate,a bond sells at stated 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 bond interest expense for 2014 is

Which of the following statements is correct?

A lender can effectively convert a fixed-rate debt into a floating-rate debt by using an interest rate swap.

A derivative instrument that gives the holder the right but not the obligation to do something is a/an

When interest rates have increased and bonds are retired before maturity,market value is

Losses must be disclosed if they are

A probable future sacrifice of an economic benefit arising from a present obligation to transfer assets or provide services to other entities in the future as a result of a past transaction is a/an

Changes in the fair value of all derivatives other than hedges must be recognized in income when they occur.

Annual amortization of discount on bonds payable (bond discount)results in an increase in interest expense and the bond's carrying value.

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