Various Orion Quiz Questions ACC 305 Exam 2

When a company declares a liquidating dividend, which of the following must be included in the journal entry to record the declaration?

A debit to a paid-in capital account

Albany Enterprises uses the fair value option to value its bonds payable. Last year, the firm experienced a moderate decline in its credit rating. If interest rates remained constant over that same period, which of the following entries would you expect to see recorded in Albany's books?

As a firm's creditworthiness declines, the value of its debt also declines. If the firm is using the fair value option, changes in the fair value of the bonds payable for a decline in creditworthiness are included as a part of income. Thus, the firm should record a debit to Bonds Payable and a credit to Unrealized Holding Gain or Loss—Income.

if bonds are initially sold at a discount and the straight-line method of amortization is used, which of the following will be true of interest expense in the earlier years?

It will exceed what it would have been had the effective-interest method of amortization been used.

Basis for dividends paid

Number of outstanding shares

Which of the following is representative of refunding?

The replacement of an existing issuance with a new one

which of the following companies would be most likely to pay a liquidating dividend?

a company that decides to cease business

stock split doesn't require

a journal entry

Foster Industries has just announced that it will conduct a bond issue in the coming months. This announcement suggests that Foster needs to borrow...

a large amount of money for the long term.

another name for carrying value

book value

The Lyon Corporation called an outstanding bond obligation four years before maturity. At that time there was an unamortized discount of $750,000. To extinguish this debt, the company had to pay a call premium of $250,000. Ignoring income tax considerations, these amounts should be treated for accounting purposes by

charging $1,000,000 to a loss in the year of extinguishment.

Morrison Enterprises decided to issue preferred stock rather than common stock in order to obtain a higher rate of return on common stockholders' equity. Morrison is trying to

trade on the equity.

The stated interest rate is presumed to be fair when a note is exchanged for property in a bargaining transaction when

the fair value of the property equals the face value of the note.

What dividends don't result in a reduction of total stockholders equity

stock

A company cannot reduce stockholders' equity by issuing

stock dividends.