Accounting Modules 7-12
The three-watch match process involves what three documents?
invoice, packing/recieving slip, purchase order
A note payable is considered a current liability if:
it is due within a 12-month period or the current operating cycle, whichever is longer
An intangible asset's value is primarily derived from:
its acquisition cost
Refinancing replaces a existing debt obligation with:
a debt obligation with different terms
What two types of useful life are used to classify intangible assets?
indefinite and identifiable
Which of the following is NOT an intangible asset?
natural resources
What type of stock has the right to receive a dividend expire whenever the dividend is not declared?
noncumulative preferred
Where are long-term liabilies shown on the balance sheet?
on the right side in the liability section
Which of the following is generally NOT a right granted to owners of preferred shares?
Variable dividend amounts.
How long do trademarks last?
What is the formula used to calculate the amortization expense using the straight-line method?
If a bond is trading at 95, this means:
the bond price is 95% of face value.
Which of the following statements about the amortization of a loan is true?
Amortization is the process of paying off a debt over time through regular payments.
Which one of these is NOT a reason to refinance a debt?
To change the payment date
Which of the following is a reason a shareholder may buy more shares in a company?
To prevent the shareholder's percentage of ownership in the company from being diluted. The shareholder wishes to maintain his ownership position in the company. The shareholder believes the company is a good investment.
When a bond is sold at a discount how is the difference between the bonds sale price and its face value?
When a bond is sold at a discount how is the difference between the bonds sale price and its face value?
What account is needed if a company plans to use current assets to retire the outstanding bonds?
a Bonds Payable account
How long are limited life intangibles amortized>
throughout their useful life
The amount of time that a business can generate revenues from an asset is known as:
useful life
Which of the following statements about a preferred stockholder's rights to the company's income is NOT true?
Dividends to common and preferred shareholders are paid at the same time.
Which of the following is the correct formula for calculating future value with simple interest?
FV = PV * (1+i*t)
The future value concept answers which of the following questions?
How much money will you have in 10 years if you invest $10,000 today earning 10% as interest every year? How much money will you have in 10 years if you invest $10,000 every year at 10% interest every year? How much money will you have in 10 years if you invest $10,000 every year at 10% net return?
If a bond is issued at a discount, what is the effect on interest expense over the term of the bond?
Interest expense will be more than the interest payments.
You decide to make an investment on a bond that pays 5% interest on the principal only. Which of the following describes how interest accrues on this investment?
Simple interest.
Which of these is a variable used to calculate the time value of money?
The interest rate. The amount of time that has passed. The present value of the sum you have.
Which of the following is a definition for cost of capital?
The rate of return that capital could earn in an alternative investment of equivalent risk.
A work of authorship includes:
computer software novels architectural drawings
Fair value is used for what type of assets?
assets that have a carrying value based on market-to-market valuations
You purchase a three year certificate of deposit (CD) for $100,000 on January 1st, 2000. This CD has an annual interest rate of 5%. The interest compounds continuously. What is the balance for the CD account on July 1, 2001?
$105,000
Which of the following is a definition for the term "real interest rate"?
The interest rate accrued after accounting for inflation.
What is the formula used to calculate the amortization expense using the straight-line method?
cost of the intangible asset / the number of years in its estimated useful life
on the right side in the liability section
debt restructuring
A par value bond is sold at what amount?
face value
What does the formula face amount plus premium/less discount represent?
the amortized cost
A bond is a security that grants the bondholder what type of stake in the company?
a creditor stake
A person purchases a security that pays $1000 a year in perpetuity. The interest rate of that security is 4%. What is the present value of that security?
$25,000
A five year annuity pays $1000 at the end of every month for four years. It has an interest rate of 3%. What is its present value?
$25,266
An annuity pays $1500 at the beginning of every month for five years. The interest rate of the annuity is 4%. What is this annuity's future value?
$99,780
What can a company do with repurchased stock?
Either retire it or keep it as treasury stock
A debt that a company acquires but intends to sell in the short term classified as:
a trading security
The process of writing off the cost of an asset over its useful life is known as:
amoritization
At what value are debt securities that a company intends to hold to maturity reported?
amortized cost less impairment
How is the difference in the sale price of the bond and its face value recorded?
as a credit to the bond premium account
Under the Equity Method, how does the investor report the investment?
as an asset
How are issued stocks reported on the financial statements?
at market value in the stockholder's equity section of the balance sheet
When is interest paid on a zero coupon bond?
at the end of the bond's term
Why is "bought back" treasury stock not considered an asset on the company's financial statements?
because a company cannot be its own shareholder
What is the most common reason fair value is used to approximate the market value of an asset?
because there is no established market for the asset
What two accounts are debited when recording the pay off of a bond?
bond interest expense and bond payable
What accounts are used to record a sale of common stock at above par?
cash, common stock and additional paid in capital
Which of these is NOT a type of patent
creative patent
Tangible assets result in _________ expense, and intangible assets result in ________ expense.
depreciation; amortization
When must companies calculate the fair market value of available for sale securities?
end of each subsequent accounting period
At what value are debt securities that a company purchases with the intent to sell reported?
fair value
After reassessment, if the value of the trademark is less than the value a year ago, the trademark is said to be:
impaired
When evaluating Goodwill, if the present value of the future revenues is less than the business segment's carrying value it is said to be:
impaired
What is another term to describe legal intangibles?
intellectual property
Which of these is an example of a current liability?
interest payable accounts payable wages payable
Which of these is an NOT an example of an expense payable?
inventory
When do common stockholders receive dividends?
only after dividends are paid to the preferred stockholders
Which of these can be used to settle a current liability?
other company assets cash a new current liability
What is the future value in 30 years of $100,000 invested today in a savings account earning a 1% simple interest rate every year (rounded up to the nearest dollar)?
130,000
A parent company must own how much of the subsidary's common stock?
50%
A subsidiary is created when a company owns what percent of another company's voting stock?
50%
Which of the following is an explanation for why the concept of the time value of money is important to a business?
A project's future unadjusted revenues can be misleading when trying to determine its profitability. By figuring out the present value of future income, a company can better compare possible projects. The present value of a dollar you get in a year is less than the value of a dollar you get today.
Copyrights last the duration of the author's life plus:
70 years
At issue the bond is recorded at what value?
At issue the bond is recorded at what value?
A company goes bankrupt and its assets are to be divided between its shareholders and debtholders. Which of the following, from highest priority to lowest, is the correct order of how the company's assets should be divided?
Bondholders, preferred shareholders, common shareholders.
Which of the following statements regarding voting rights is NOT true?
Corporate shareholders are prohibited from casting their vote online.
Which of the following statements regarding the clientele effect's influence on stock price is true?
Investors may keep shares that don't reflect their dividend preferences due to reinvestment costs. Investors lost due to a dividend policy shift are often offset by new investors who like the shift. The content of a company's dividend policy is not as important as whether it is stable.
A security offers to pay the holder $1000 at the end of every month for five years. What type of annuity is this?
Ordinary annuity.
What is the journal entry to record the interest received on a debt held to maturity?
a debit to cash and a credit interest revenue
What is the journal entry to record a debt acquired and intended to be held to maturity?
a debit to investments and a credit to cash
To record the issue of bonds a company creates what type of account?
a liability account
According to the International Accounting Standards Board a liability is a present obligation that arises from:
a past event
A written, unconditional promise to pay a determined sum of money to someone is known as:
a promissory note or note payable
What type of bond has an ownership list kept by the bond issuer?
a registered bond
An unrealized gain or loss on a security is a result of:
the difference between the purchase price of the security and its current fair market value
What a bondholder's return would be if he invested his money in something other than a bond is known as:
the discount rate
What item(s) is always paid first in liquidation?
liquidator costs
How is a zero coupon bond sold?
lower than face value
What must be done in order to recieve the cash discount on an accounts payable invoice?
pay the invoice within the specified amount of time
A shareholder in a limited liability company is NOT:
personally liable for the debts of the company
What two components make up the present value of a bond?
principal and the interest payments
A period of three consecutive months (1/4 of a year).
quarter
In addition to listing the purpose of the business and its address, the article of incorporation includes:
the amount of stock it is authorized to issue
What does it mean if an invoice offers terms of 5/20 Net 30?
the seller will deduct 5% from the total invoice payment if payment is made within 20 days.
Which of these is a reason that companies issue preferred stock?
to avoid diluting common stockholder's control the coporation to avoid issuing additional shares of common stock to avoid using bonds
When is the best time for an employee to exercise their employee stock options?
when the stock's market price rises above the option's exercise price
How would a loan with two payments, one due within the next 12 months and one due 12 months after the first payment, be recorded?
with the first payment in current liabilities and the second in long-term liabilities
When must a liability be settled, in order to be classified as current?
within the company's fiscal year or operating cycle
