Question 1

When a capital lease for equipment is signed, the lessee records an asset called

Accepted Answer

A) a lease obligation. 
B) the present value of capital lease payments. 
C) equipment. 
D) an equipment leasehold. 
E) the future value of capital lease payments. 
A) a lease obligation. 
B) the present value of capital lease payments. 
C) equipment. 
D) an equipment leasehold. 
E) the future value of capital lease payments.

Question 2

Firms must disclose in notes to the financial statements the cash flows associated with capital leases and with operating leases for each of the succeeding five years and for all years after five years in the aggregate.

Accepted Answer

A) True 
 B)False

Question 3

What factors enter into choosing the accounting method for leases under U.S.GAAP and IFRS?

Accepted Answer

CHOOSING THE ACCOUNTING METHOD FOR LEASE

Question 4

Which of the following is/are true?

Accepted Answer

A) A bond indenture refers to the financial contract underlying bonds. 
B) Bonds appear on the balance sheet under the title Bonds Payable. 
C) Bonds typically carry maturity dates longer than approximately ten years. 
D) Bonds typically involve many lenders instead of a single lender. 
E) all of the above 
A) A bond indenture refers to the financial contract underlying bonds. 
B) Bonds appear on the balance sheet under the title Bonds Payable. 
C) Bonds typically carry maturity dates longer than approximately ten years. 
D) Bonds typically involve many lenders instead of a single lender. 
E) all of the above

Question 5

The more long-term debt in a firm's capital structure, the less the risk of default or bankruptcy.

Accepted Answer

A) True 
 B)False

Question 6

In return for promising to make future payments, a firm receives cash or other assets with a measurable cash-equivalent value.The firm records a long-term liability for that amount and the book value of that borrowing at any time equals the

Accepted Answer

A) future value of all the then-remaining promised payments using the historical market interest rate applicable at the time the firm originally incurred the liability. 
B) current value of all the then-remaining promised payments using the historical market interest rate applicable at the time the firm originally incurred the liability. 
C) present value of all the then-remaining promised payments using the market interest rate applicable at the current time. 
D) present value of all the then-remaining promised payments using the historical market interest rate applicable at the time the firm originally incurred the liability. 
E) future value of all the then-remaining promised payments using the using the market interest rate applicable at the current time. 
A) future value of all the then-remaining promised payments using the historical market interest rate applicable at the time the firm originally incurred the liability. 
B) current value of all the then-remaining promised payments using the historical market interest rate applicable at the time the firm originally incurred the liability. 
C) present value of all the then-remaining promised payments using the market interest rate applicable at the current time. 
D) present value of all the then-remaining promised payments using the historical market interest rate applicable at the time the firm originally incurred the liability. 
E) future value of all the then-remaining promised payments using the using the market interest rate applicable at the current time.

Question 7

General Semiconductor is a European-based designer and manufacturer of semiconductors.It manufactures semiconductors in fixed-asset intensive plants.The moderate fraction of its total assets that are property, plant, and equipment results from depreciating its technology-intensive manufacturing facilities over periods as short as four years.Which of the following is/are true?

Accepted Answer

A) General Semiconductor has small long-term debt and debt-equity ratios. 
B) General Semiconductor incurs substantial technology risk from product obsolescence, with product life cycles of less than two years. 
C) Heavy reliance on debt financing would add financing risk and thereby increase borrowing costs even more. 
D) All of the above are true. 
E) none of the above 
A) General Semiconductor has small long-term debt and debt-equity ratios. 
B) General Semiconductor incurs substantial technology risk from product obsolescence, with product life cycles of less than two years. 
C) Heavy reliance on debt financing would add financing risk and thereby increase borrowing costs even more. 
D) All of the above are true. 
E) none of the above

Question 8

Divine Paper, a United States-based company, processes wood pulp into paper products in fixed-asset intensive facilities.It has a large ratio of property, plant, and equipment to total assets and a high debt-equity ratios.Which of the following is/are true?

Accepted Answer

A) Divine Paper carries higher levels of risk than an electrical utility. 
B) Divine Paper does not have the regulated, monopoly status of an electrical utility. 
C) Sales of Divine Paper are more sensitive to changes in the level of business activity than those of an electric utility. 
D) The higher risk of Divine Paper, relative to an electric utility, raises its borrowing costs and decreases its reliance on debt financing. 
E) all of the above 
A) Divine Paper carries higher levels of risk than an electrical utility. 
B) Divine Paper does not have the regulated, monopoly status of an electrical utility. 
C) Sales of Divine Paper are more sensitive to changes in the level of business activity than those of an electric utility. 
D) The higher risk of Divine Paper, relative to an electric utility, raises its borrowing costs and decreases its reliance on debt financing. 
E) all of the above

Question 9

An initial issue price equal to the face value of the bonds means that the implicit interest rate equals the _____.

Accepted Answer

A) fair interest rate 
B) average interest rate 
C) future interest rate 
D) yield to maturity 
E) past interest rate 
A) fair interest rate 
B) average interest rate 
C) future interest rate 
D) yield to maturity 
E) past interest rate

Question 10

Which of the following is/are true of capital lease transactions?

Accepted Answer

A) Capital leases may only be recorded if the transaction involves a third party. 
B) Capital leases always have a bargain purchase option. 
C) The lease is valued at the future value of the benefits provided. 
D) The accounting treatment adopted is generally the same for lessors and lessees. 
E) All of the above. 
A) Capital leases may only be recorded if the transaction involves a third party. 
B) Capital leases always have a bargain purchase option. 
C) The lease is valued at the future value of the benefits provided. 
D) The accounting treatment adopted is generally the same for lessors and lessees. 
E) All of the above.

Question 11

What are the requirements for the disclosure of the carrying and fair values of debt?

Accepted Answer

DISCLOSURES OF CARRYING AND FAIR VALUES

Question 12

Describe what bond provisions exist.

Accepted Answer

BOND PROVISIONS
Bond issues vary with re

Question 13

In return for promising to make future payments, a firm receives cash or other assets with a measurable cash-equivalent value.The firm records a long-term liability for that amount and determines the market interest rate by finding the

Accepted Answer

A) internal rate of return. 
B) external rate of return. 
C) applicable federal rate. 
D) prime lending rate published in The Wall Street Journal. 
E) federal funds rate. 
A) internal rate of return. 
B) external rate of return. 
C) applicable federal rate. 
D) prime lending rate published in The Wall Street Journal. 
E) federal funds rate.

Question 14

The conversion option of convertible bonds has value because the holder can benefit from some of the later increases in the market value of the firm's _____ after issuance of the bonds.

Accepted Answer

A) preferred stock 
B) paid-in-capital 
C) treasury stock 
D) common stock 
E) debentures 
A) preferred stock 
B) paid-in-capital 
C) treasury stock 
D) common stock 
E) debentures

Question 15

What are the general principles for measuring financial instruments?

Accepted Answer

MEASUREMENT OF FINANCIAL INSTRUMENTS: GE

Question 16

Firms must disclose in notes to the financial statements the cash flows associated with capital leases and with operating leases for each of the succeeding _____ years and for all years after _____ years in the aggregate.

Accepted Answer

A) two: two 
B) three; three 
C) four; five 
D) five; five 
E) six; six 
A) two: two 
B) three; three 
C) four; five 
D) five; five 
E) six; six

Question 17

A firm classifies liabilities which fall due within the operating cycle, usually one year, as

Accepted Answer

A) a current liability. 
B) a long-term liability. 
C) a noncurrent asset. 
D) part of shareholders' equity. 
E) a contingent liability. 
A) a current liability. 
B) a long-term liability. 
C) a noncurrent asset. 
D) part of shareholders' equity. 
E) a contingent liability.

Question 18

(CMA adapted, Dec 90 #12) Marla, Inc.issued $6,000,000 of 12% bonds on December 1, Year 1, due on December 1, Year 6, with interest payable each December 1 and June 1.The bonds sold for $5,194,770 to yield 16%.If the discount is amortized by the effective interest method, Marla, Inc.'s interest expense for the fiscal year ended November 30, Year 2 related to its $6,000,000 bond issue will be

Accepted Answer

A) $623,372 
B) $720,000 
C) $835,610 
D) $881,046 
E) $623,046 
A) $623,372 
B) $720,000 
C) $835,610 
D) $881,046 
E) $623,046

Question 19

Which of the following is/are not one of the conditions of a capital lease?

Accepted Answer

A) transfer of ownership to the lessor at the end of the lease term 
B) transfer of ownership to the lessee appears likely because of a "bargain" purchase option 
C) lease extends for at least 75 percent of the asset's life 
D) present value of the minimum contractual lease payments equals or exceeds 90 percent of the fair market value of the asset at the time the lessee signs the lease 
E) all of the above 
A) transfer of ownership to the lessor at the end of the lease term 
B) transfer of ownership to the lessee appears likely because of a "bargain" purchase option 
C) lease extends for at least 75 percent of the asset's life 
D) present value of the minimum contractual lease payments equals or exceeds 90 percent of the fair market value of the asset at the time the lessee signs the lease 
E) all of the above

Question 20

When a company issues bonds, it must sometimes issue them at a discount, while at other times it will issue them at a premium.
Required:
Discuss the economic circumstances that surround the situations where bonds are issued at discounts or premiums.Use examples where appropriate.

Accepted Answer

Bonds may be issued at a discount (below

When a capital lease for equipment is signed, the lessee records an asset called

Firms must disclose in notes to the financial statements the cash flows associated with capital leases and with operating leases for each of the succeeding five years and for all years after five years in the aggregate.

What factors enter into choosing the accounting method for leases under U.S.GAAP and IFRS?

Which of the following is/are true?

The more long-term debt in a firm's capital structure, the less the risk of default or bankruptcy.

In return for promising to make future payments, a firm receives cash or other assets with a measurable cash-equivalent value.The firm records a long-term liability for that amount and the book value of that borrowing at any time equals the

Divine Paper, a United States-based company, processes wood pulp into paper products in fixed-asset intensive facilities.It has a large ratio of property, plant, and equipment to total assets and a high debt-equity ratios.Which of the following is/are true?

An initial issue price equal to the face value of the bonds means that the implicit interest rate equals the _____.

Which of the following is/are true of capital lease transactions?

What are the requirements for the disclosure of the carrying and fair values of debt?

Describe what bond provisions exist.

In return for promising to make future payments, a firm receives cash or other assets with a measurable cash-equivalent value.The firm records a long-term liability for that amount and determines the market interest rate by finding the

The conversion option of convertible bonds has value because the holder can benefit from some of the later increases in the market value of the firm's _____ after issuance of the bonds.

What are the general principles for measuring financial instruments?

Firms must disclose in notes to the financial statements the cash flows associated with capital leases and with operating leases for each of the succeeding _ years and for all years after _ years in the aggregate.

A firm classifies liabilities which fall due within the operating cycle, usually one year, as

Which of the following is/are not one of the conditions of a capital lease?

When a company issues bonds, it must sometimes issue them at a discount, while at other times it will issue them at a premium. Required: Discuss the economic circumstances that surround the situations where bonds are issued at discounts or premiums.Use examples where appropriate.

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

The Basics of Record Keeping and Financial Statement Preparation: Income Statement

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Statement of Cash Flows

Introduction to Financial Statement Analysis

Revenue Recognition, Receivables, and Advances From Customers

Working Capital

Long-Lived Tangible and Intangible Assets

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Marketable Securities and Derivatives

Intercorporate Investments in Common Stock

Shareholders Equity: Capital Contributions and Distributions

Statement of Cash Flows: Another Look

Synthesis and Extensions

Filters

Exam 11: Notes, Bonds, and Leases

When a capital lease for equipment is signed, the lessee records an asset called

Firms must disclose in notes to the financial statements the cash flows associated with capital leases and with operating leases for each of the succeeding five years and for all years after five years in the aggregate.

What factors enter into choosing the accounting method for leases under U.S.GAAP and IFRS?

Which of the following is/are true?

The more long-term debt in a firm's capital structure, the less the risk of default or bankruptcy.

In return for promising to make future payments, a firm receives cash or other assets with a measurable cash-equivalent value.The firm records a long-term liability for that amount and the book value of that borrowing at any time equals the

Divine Paper, a United States-based company, processes wood pulp into paper products in fixed-asset intensive facilities.It has a large ratio of property, plant, and equipment to total assets and a high debt-equity ratios.Which of the following is/are true?

An initial issue price equal to the face value of the bonds means that the implicit interest rate equals the _____.

Which of the following is/are true of capital lease transactions?

What are the requirements for the disclosure of the carrying and fair values of debt?

Describe what bond provisions exist.

In return for promising to make future payments, a firm receives cash or other assets with a measurable cash-equivalent value.The firm records a long-term liability for that amount and determines the market interest rate by finding the

The conversion option of convertible bonds has value because the holder can benefit from some of the later increases in the market value of the firm's _____ after issuance of the bonds.

What are the general principles for measuring financial instruments?

Firms must disclose in notes to the financial statements the cash flows associated with capital leases and with operating leases for each of the succeeding _____ years and for all years after _____ years in the aggregate.

A firm classifies liabilities which fall due within the operating cycle, usually one year, as

Which of the following is/are not one of the conditions of a capital lease?

When a company issues bonds, it must sometimes issue them at a discount, while at other times it will issue them at a premium. Required: Discuss the economic circumstances that surround the situations where bonds are issued at discounts or premiums.Use examples where appropriate.

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

The Basics of Record Keeping and Financial Statement Preparation: Income Statement

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Statement of Cash Flows

Introduction to Financial Statement Analysis

Revenue Recognition, Receivables, and Advances From Customers

Working Capital

Long-Lived Tangible and Intangible Assets

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Marketable Securities and Derivatives

Intercorporate Investments in Common Stock

Shareholders Equity: Capital Contributions and Distributions

Statement of Cash Flows: Another Look

Synthesis and Extensions

Filters

Firms must disclose in notes to the financial statements the cash flows associated with capital leases and with operating leases for each of the succeeding _ years and for all years after _ years in the aggregate.