ACCT 302 SIUE Exam 1

which of the following is a correct statement of one of the classification tests

the lease term is equal to or more than 75% of the estimated economic life of the leased property

under the effective interest method of bond discount or premium amortization, the periodic interest expense is equal to

the market rate multiplied by the beginning of period carrying amount of the bonds

LeMond Co. manufactures equipment that is sold or leased. On January 1, 2011, LeMond leased equipment to Pantani for a five-year period ending December 31, 2016. Equal payments under the lease are $44,013 and are due on January 1 of each year. The first payment was made on January 1, 2011. The normal sales price of the equipment is $200,000, and cost is $164,000. The item has an unguaranteed residual value of $15,000 and the present value of the residual value is $10,209. The implicit rate is 8%. The lease qualifies as a sale-type lease. What amount of Cost of Goods Sold should LeMond realize from the lease transaction?

153,791 164,000-10,209

On December 31, 20X0, Costigan Co. leased a machine from Lovata, Inc. for a five-year period. Equal annual payments under the lease are $705,000 and are due on December 31st of each year. The first payment was made on December 31, 20X0, and the second payment was made on December 31, 20X1. The lease qualifies as a finance lease and as a sales-type lease. -Unguaranteed residual value of $20,000. -Useful life is 6 years and item is returned at lease end. -Implicit rate 10%. -Present value of residual value equals $12,418. -Costigan capitalizes $2,939,755 of ROU asset. -Lovata capitalizes a lease receivable of $2,952,174. Cost of item equals $2,000,000 What is Costigan's is the balance for the ROU asset for fiscal year ended December 31, 20X1? Correct Answer:b. $2,449,795

2,449,795

Fox company issued 100,000 of ten year, 10% bonds that pay interest semiannually. the bonds are sold to yield 8%. One step in calculating the issue price of the bonds is to multiply the face value by the table value for

20 periods and 4% from the present value of table

On December 31, 20X0, Costigan Co. leased a machine from Lovata, Inc. for a five-year period. Equal annual payments under the lease are $705,000 and are due on December 31st of each year. The first payment was made on December 31, 20X0, and the second payment was made on December 31, 20X1. The lease qualifies as a finance lease and as a sales-type lease. Unguaranteed residual value of $20,000. -Useful life is 6 years and item is returned at lease end. -Implicit rate 10%. -Present value of residual value equals $12,418. -Costigan capitalizes $2,939,755 of ROU asset. -Lovata capitalizes a lease receivable of $2,952,174. Cost of item equals $2,000,000 What amount of interest expense does Costigan recognize in fiscal year ended December 21, 20X1?

233,476 (2,939,755-705000)*0.1

On January 1, 2010, Cadel Co. issued $2,000,000, 12% bonds, which mature on January 1, 2020 (10-year term). The bonds were issued for $1,791,355 to yield 14%, resulting in bond discount of $208,645. Cadel uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. What amount of interest expense does Cadel Co. record for fiscal year 2010?

250,790 (1,791,355*0.14)

lease A does NOT contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease B does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75% of the estimated economic life of the leased property. how should the lessee classify these leases

Lease A-finance lease Lease B-finance lease

On January 2, 2010, Fausto Corporation issued $2,000,000 of 10-year, 10% bonds at 97 due December 31, 2020. Legal and other costs of $100,000 were incurred in connection with the issue. Interest on the bonds is payable semi-annually on each June 30 and December 31. On January 2, 2017, Fausto repurchased $600,000 the bonds at 101. Assume that Fausto amortizes the Premium or Discount on Bonds Payable using the straight-line method. Fausto's journal entry to record the partial bond buyback includes

None of these answers are correct

the generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as

a difference between the reacquisition price and the net carrying amount of the debt which should be recognized in the period of redemption

while only certain leases are currently accounted for as a sale on purchase, there is theoretical justification for considering all leases to be sales or purchases. the principal reason that supports this idea is that

a lease reflects the purchase or sale of a quantifiable right to the use of the property

the covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the a)bond indenture b)registered bond c)bond debenture d)bond coupon

a)bond debenture

The term used for bonds that are unsecured as to principal is

a)debenture bonds

an early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between interest dates. at the time of re-acquisition

all of the above: -interest must be accrued from the last interest date to the purchase date -the premium must be amortized up to the purchase date -any costs of issuing the bonds must be amortized up to the purchase date

under the effective interest method when a bond is issued at a discount, interest expense

always increases each period the bonds are outstanding

in a finance lease, the lessee records

amortization expense and interest expense

premium on bonds payable is

an adjunct account-an account in financial reporting that increases the book value of a liability account.

a lessee with a finance lease containing a bargain purchase option should depreciate the leased asset over the

assets remaining economic life

the printing costs and legal fees associated with the issuance of bonds should

be accumulated in a deferred charge account and amortized over the life of the bonds

Bonds for which the owners' names are not registered with the issuing corporation are called

bearer bonds

all the following statements related to bonds are correct regarding bonds except

bonds usually pay interest annually (they usually pay semi annually)

a bond for which the issuer has the right to call and retire the bonds prior to maturity is a

callable bond

the interest rate written in the terms of the bond indenture is known as the

coupon rate, nominal rate, stated rate

if bonds are issued between interest dates, the entry on the books of the issuing corporation could include a

credit to interest expense

the lease liability account should be disclosed as

current portions in current liabilities and the remainder in noncurrent liabilities

the rate of interest actually earned by bondholders is called the

effective rate

the interest rate actually earned by bondholders is called the

effective yield

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

exceed what it would have been had the effective interest method of amortization been used

a ten year bond was issued in 2016 at a discount with a call provision to retire the bonds. when the bond issuer exercised the call provision on an interest date in 2018, the carrying amount of the bond was less than the call price. the amount of bond liability removed from the accounts in 2018 should have equaled

face amount less unamortized discount

bond interest paid is equal to the

face amount of the bonds multiplied by the stated interest rate

if bonds are issued initially at a premium and the effective interest method of amortization is used, interest expense in the earlier years will be

greater than if the straight line method was used

if a bond sold at 97, the market rate was

greater than the stated rate

which of the following describes the lease term test

if the lease term is 75% or more of the economic life, it is a finance lease

when lessors account for residual values related to leases assets, they

include the residual value in the receivable measurement because it is assumed the residual value will be realized

bonds that pay no interest unless the issuing company is profitable are called

income bonds

when the effective interest method is used to amortize bond premium or discount, the periodic amortization will

increase if the bonds were issued at either a discount or premium

under the effective interest method, interest expense

is the same total amount as straight line interest expense over the term of the bonds

in an operating lease, the lessee records

lease expense

when a bond sells at a premium, interest expense will be

less than the bond interest payment

the selling price of a bond is the sum of the present values of the principal and the periodic interest payments. the present values are determined by discounting using the

market rate

the classifications of a lease by the lessee are

operating and finance leases

when debt is issued at a discount, interest expense over the term of debt equals the cash interest paid

plus discount

the carrying value of bonds reported on the balance sheet equals the face value of bonds payable

plus premiums less discounts

when depreciable asset is leased under an operating lease, the lessor

records depreciation in the normal manner

a bond issued in the name of the owner is a

registered bond

the lease receivable amount includes the present value of

rental payments plus the present value of guarenteed and unguarenteed residual values

Lease Receivable amount includes the present value of

rental payments plus the present value of the guarenteed and unguarenteed residual values

a bond that matures in installments is called a

serial bond

what type of bonds mature in installments

serial bonds

in a lease that is recorded as a sales type lease by the lessor, interest revenue

should be recognized over the period of the lease using the effective interest method

the face value of bonds is also called each of the following except

stated value

for a sales type lease

the gross profit will be the same whether the residual value is guarenteed or unguarenteed

what impact does a bargain purchase option have on the present value of the minimum lease payments computed by the lessee

the minimum lease payments would be increased by the present value of the option price if, at the time of the lease agreement, it appeared certain that the lessee would exercise the option at the end of the lease and purchase the asset at the option price

Reich, Inc. issued bonds with a maturity amount of , 200,000 and a maturity ten years from date of issue. if the bonds were issued at a premium, this indicates that

the nominal rate of interest exceeded the market rate

a lessor with a sales type lease involving an unguarenteed residual value at the end of the lease term will report sales revenue in the period of inception of the lease at which of the following amounts

the sales price less the present value of the residual value

stonehenge, inc issued bonds with a maturity amount of 5,000,000 and a maturity eight years from date of issue. if the bonds were issued at a premium, this indicates that

the stated rate of interest exceeded the market rate

both discount on bonds payable and premium on bonds payable are

valuation accounts