Question 1

Discuss the fair value option in accounting for certain assets and liabilities.

Accepted Answer

FAIR VALUE OPTION
U.S.GAAP and IFRS allo

Question 2

Excellent 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 not true?

Accepted Answer

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

Question 3

Which of the following is not true regarding specific bond provisions?

Accepted Answer

A) Firms might issue bonds based only on their credit worthiness as an entity. 
B) Particular collateral might back up bonds issued by a firm. 
C) Unsecured borrowing might carry senior rights or subordinated rights in the event of bankruptcy. 
D) Senior debt holders have a higher priority for payment in the event of bankruptcy than subordinated (junior) unsecured lenders. 
E) Common stockholders have a higher priority than unsecured bondholders for payment in the event of bankruptcy. 
A) Firms might issue bonds based only on their credit worthiness as an entity. 
B) Particular collateral might back up bonds issued by a firm. 
C) Unsecured borrowing might carry senior rights or subordinated rights in the event of bankruptcy. 
D) Senior debt holders have a higher priority for payment in the event of bankruptcy than subordinated (junior) unsecured lenders. 
E) Common stockholders have a higher priority than unsecured bondholders for payment in the event of bankruptcy.

Question 4

Firms that need cash for long-term purposes, such as acquiring buildings and equipment or financing a business acquisition, and that wish to use debt as a means of obtaining cash, will

Accepted Answer

A) issue common stock in the capital markets. 
B) issue preferred stock in the capital markets. 
C) issue paid-in-capital in the capital markets. 
D) issue bonds in the capital markets. 
E) all of the above 
A) issue common stock in the capital markets. 
B) issue preferred stock in the capital markets. 
C) issue paid-in-capital in the capital markets. 
D) issue bonds in the capital markets. 
E) all of the above

Question 5

Consider a firm that recently issued bonds.Further, consider that the firm also set up a bond sinking fund.
Required:
 a.	Why would a firm create a long-term liability?
b.	Why would a firm set up a bond sinking fund?
c.	If a firm paid $10,000 into its bond sinking fund at the end of the year, how would this transaction be journalized?

Accepted Answer

The answer of Consider a firm that recently issued bonds.Further,...

Question 6

The typical _____ bond pays interest periodically, usually every six months, during the life of the bond and repays the principal amount borrowed at maturity.

Accepted Answer

A) derivative 
B) multi-coupon 
C) zero coupon 
D) serial 
E) debenture 
A) derivative 
B) multi-coupon 
C) zero coupon 
D) serial 
E) debenture

Question 7

A callable bond

Accepted Answer

A) must be retired from a sinking fund maintained by the bond issuer. 
B) may be retired at a specified price at the option of the bond purchaser. 
C) may be reacquired by the issuing company at a specified price. 
D) are registered with an agent to insure correct payment of bond interest amounts. 
E) are convertible into common stock at par values. 
A) must be retired from a sinking fund maintained by the bond issuer. 
B) may be retired at a specified price at the option of the bond purchaser. 
C) may be reacquired by the issuing company at a specified price. 
D) are registered with an agent to insure correct payment of bond interest amounts. 
E) are convertible into common stock at par values.

Question 8

How are notes valued and accounted for under the authoritative guidance?

Accepted Answer

ACCOUNTING FOR NOTES
Firms typically bor

Question 9

Upon entering in the lease agreement, capital leases require that the lessee records

Accepted Answer

A) the leased asset, only. 
B) the leased asset and the lease liability. 
C) the lease liability, only. 
D) nothing because the lessor owns the property. 
E) the present value of future cash flows as an asset, only. 
A) the leased asset, only. 
B) the leased asset and the lease liability. 
C) the lease liability, only. 
D) nothing because the lessor owns the property. 
E) the present value of future cash flows as an asset, only.

Question 10

A _____ bond requires periodic payments of interest plus a portion of the principal throughout the life of the bond.

Accepted Answer

A) convertible 
B) callable 
C) zero coupon 
D) serial 
E) debenture 
A) convertible 
B) callable 
C) zero coupon 
D) serial 
E) debenture

Question 11

The capital lease method classifies the portion of the lease payment related to interest expense as an ________use of cash and the portion related to a reduction in the lease liability as a _________ use of cash.

Accepted Answer

A) operating; investing 
B) operating; financing 
C) financing; investing 
D) investing; financing 
E) financing; operating 
A) operating; investing 
B) operating; financing 
C) financing; investing 
D) investing; financing 
E) financing; operating

Question 12

Common terminology refers to the calculations for amortizing a financial instrument to its maturity value over time as the imputed interest method.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) transfer of ownership to the lessee 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 70 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 lessee 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 70 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 14

The amount reported on the balance sheet throughout the life of a loan (that is, its carrying value) equals

Accepted Answer

A) the future value of the remaining cash flows discounted at the historical market interest rate. 
B) the present value of the remaining cash flows discounted at the historical market interest rate. 
C) the future value of the remaining cash flows discounted at the current market interest rate. 
D) the present value of the remaining cash flows discounted at the current market interest rate. 
E) the future value of the remaining cash flows discounted at the fair market interest rate. 
A) the future value of the remaining cash flows discounted at the historical market interest rate. 
B) the present value of the remaining cash flows discounted at the historical market interest rate. 
C) the future value of the remaining cash flows discounted at the current market interest rate. 
D) the present value of the remaining cash flows discounted at the current market interest rate. 
E) the future value of the remaining cash flows discounted at the fair market interest rate.

Question 15

U.S.GAAP and IFRS permit firms to account for notes and bonds under which of the following approach(es)?

Accepted Answer

A) Amortized Cost. 
B) Fair Value. 
C) Amortized Cost and Future Value. 
D) Non-amortized cost and Fair Value. 
E) Amortized Cost and Fair Value. 
A) Amortized Cost. 
B) Fair Value. 
C) Amortized Cost and Future Value. 
D) Non-amortized cost and Fair Value. 
E) Amortized Cost and Fair Value.

Question 16

Describe the effect of the operating and capital lease methods on the financial statements of the lessee.

Accepted Answer

EFFECT OF THE OPERATING AND CAPITAL LEAS

Question 17

Big City Electric is a regulated monopoly providing electric services in a large city.Property, plant, and equipment dominate the asset side of the balance sheet.Which of the following is not true?

Accepted Answer

A) It relies more on long-term debt than shareholders' equity to finance these facilities. 
B) It has a debt-equity ratio of 50% or less. 
C) The regulated monopoly status practically eliminates the risk of default or bankruptcy, so Big City Electric faces a relatively low borrowing cost. 
D) Big City Electric's production and transmission facilities can serve as collateral for the debt. 
E) none of the above 
A) It relies more on long-term debt than shareholders' equity to finance these facilities. 
B) It has a debt-equity ratio of 50% or less. 
C) The regulated monopoly status practically eliminates the risk of default or bankruptcy, so Big City Electric faces a relatively low borrowing cost. 
D) Big City Electric's production and transmission facilities can serve as collateral for the debt. 
E) none of the above

Question 18

Heather Corporation issued $2,000,000, 10-percent, 10-year bonds on January 2, Year 2.The bonds pay interest semiannually on January 1 and July 1.The bonds were priced on the market to yield 8 percent.
Refer to the Heather Corporation example.The issue price of the bonds is calculated as follows:

Accepted Answer

A) the present value of $2,000,000 at 10 percent for 10 periods, plus the present value of an annuity of $100,000 at 4 percent for 20 periods. 
B) the present value of $2,000,000 at 5 percent for 20 periods, plus the present value of an annuity of $100,000 at 5 percent for 20 periods. 
C) the present value of $2,000,000 at 8 percent for 10 periods, plus the present value of an annuity of $100,000 at 4 percent for 20 periods. 
D) the present value of $2,000,000 at 4 percent for 20 periods, plus the present value of an annuity of $100,000 at 4 percent for 20 periods. 
E) none of the above 
A) the present value of $2,000,000 at 10 percent for 10 periods, plus the present value of an annuity of $100,000 at 4 percent for 20 periods. 
B) the present value of $2,000,000 at 5 percent for 20 periods, plus the present value of an annuity of $100,000 at 5 percent for 20 periods. 
C) the present value of $2,000,000 at 8 percent for 10 periods, plus the present value of an annuity of $100,000 at 4 percent for 20 periods. 
D) the present value of $2,000,000 at 4 percent for 20 periods, plus the present value of an annuity of $100,000 at 4 percent for 20 periods. 
E) none of the above

Question 19

Which of the following is/are true?

Accepted Answer

A) Common terminology refers to the financial contract underlying bank loans as a note. 
B) Financial contracts underlying bank loans usually appear on the balance sheet under the title Notes Payable. 
C) Notes of business firms generally have maturity dates less than approximately ten years. 
D) No public market for Notes Payable exists, so the borrower will have difficulty disengaging from the borrowing arrangement prior to maturity. 
E) all of the above 
A) Common terminology refers to the financial contract underlying bank loans as a note. 
B) Financial contracts underlying bank loans usually appear on the balance sheet under the title Notes Payable. 
C) Notes of business firms generally have maturity dates less than approximately ten years. 
D) No public market for Notes Payable exists, so the borrower will have difficulty disengaging from the borrowing arrangement prior to maturity. 
E) all of the above

Discuss the fair value option in accounting for certain assets and liabilities.

Excellent 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 not true?

Which of the following is not true regarding specific bond provisions?

Firms that need cash for long-term purposes, such as acquiring buildings and equipment or financing a business acquisition, and that wish to use debt as a means of obtaining cash, will

The typical _____ bond pays interest periodically, usually every six months, during the life of the bond and repays the principal amount borrowed at maturity.

A callable bond

How are notes valued and accounted for under the authoritative guidance?

Upon entering in the lease agreement, capital leases require that the lessee records

A _____ bond requires periodic payments of interest plus a portion of the principal throughout the life of the bond.

The capital lease method classifies the portion of the lease payment related to interest expense as an use of cash and the portion related to a reduction in the lease liability as a _ use of cash.

Common terminology refers to the calculations for amortizing a financial instrument to its maturity value over time as the imputed interest method.

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

The amount reported on the balance sheet throughout the life of a loan (that is, its carrying value) equals

U.S.GAAP and IFRS permit firms to account for notes and bonds under which of the following approach(es)?

Describe the effect of the operating and capital lease methods on the financial statements of the lessee.

Big City Electric is a regulated monopoly providing electric services in a large city.Property, plant, and equipment dominate the asset side of the balance sheet.Which of the following is not true?

Heather Corporation issued $2,000,000, 10-percent, 10-year bonds on January 2, Year 2.The bonds pay interest semiannually on January 1 and July 1.The bonds were priced on the market to yield 8 percent. Refer to the Heather Corporation example.The issue price of the bonds is calculated as follows:

Which of the following is/are true?

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

Discuss the fair value option in accounting for certain assets and liabilities.

Excellent 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 not true?

Which of the following is not true regarding specific bond provisions?

Firms that need cash for long-term purposes, such as acquiring buildings and equipment or financing a business acquisition, and that wish to use debt as a means of obtaining cash, will

The typical _____ bond pays interest periodically, usually every six months, during the life of the bond and repays the principal amount borrowed at maturity.

A callable bond

How are notes valued and accounted for under the authoritative guidance?

Upon entering in the lease agreement, capital leases require that the lessee records

A _____ bond requires periodic payments of interest plus a portion of the principal throughout the life of the bond.

The capital lease method classifies the portion of the lease payment related to interest expense as an ________use of cash and the portion related to a reduction in the lease liability as a _________ use of cash.

Common terminology refers to the calculations for amortizing a financial instrument to its maturity value over time as the imputed interest method.

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

The amount reported on the balance sheet throughout the life of a loan (that is, its carrying value) equals

U.S.GAAP and IFRS permit firms to account for notes and bonds under which of the following approach(es)?

Describe the effect of the operating and capital lease methods on the financial statements of the lessee.

Big City Electric is a regulated monopoly providing electric services in a large city.Property, plant, and equipment dominate the asset side of the balance sheet.Which of the following is not true?

Heather Corporation issued $2,000,000, 10-percent, 10-year bonds on January 2, Year 2.The bonds pay interest semiannually on January 1 and July 1.The bonds were priced on the market to yield 8 percent. Refer to the Heather Corporation example.The issue price of the bonds is calculated as follows:

Which of the following is/are true?

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

The capital lease method classifies the portion of the lease payment related to interest expense as an use of cash and the portion related to a reduction in the lease liability as a _ use of cash.