Global ACCT CH 13 14 15
The residual interest in a corporation belongs to the a. management. b. creditors. c. ordinary shareholders. d. preference shareholders.
C
Total shareholders' equity represents a. a claim to specific assets contributed by the owners. b. the maximum amount that can be borrowed by the enterprise. c. a claim against a portion of the total assets of an enterprise. d. only the amount of earnings that have been retained in the business.
C
What does the current ratio inform you about a company? a. The extent of slow-moving inventories. b. The efficient use of assets. c. The company's liquidity. d. The company's profitability.
C
Liabilities are a. any accounts having credit balances after closing entries are made. b. deferred credits that are recognized and measured in conformity with generally accepted accounting principles. c. obligations to transfer ownership shares to other entities in the future. d. present obligations arising from past events resulting in an outflow of resources.
D
The rate of interest actually earned by bondholders is called the a. stated rate only. b. yield rate only. c. effective rate only. d. effective, yield or market rate
D
Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to a. the stated (nominal) rate of interest multiplied by the face value of the bonds. b. the market rate of interest multiplied by the face value of the bonds. c. the stated rate multiplied by the beginning-of-period carrying amount of the bonds. d. the market rate multiplied by the beginning-of-period carrying amount of the bonds.
D
What are compensated absences? a. Unpaid time off. b. A form of healthcare. c. Payroll deductions. d. Paid time off.
D
When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be a. decreased by accrued interest from June 1 to November 1. b. decreased by accrued interest from May 1 to June 1. c. increased by accrued interest from June 1 to November 1. d. increased by accrued interest from May 1 to June 1.
D
Where is debt callable by the creditor reported on the debtor's financial statements? a. Non-current liability. b. Current liability if the creditor intends to call the debt within the year, otherwise a non-current liability. c. Current liability if it is probable that creditor will call the debt within the year, otherwise a non-current liability. d. Current liability.
D
Which of the following is not a condition necessary to exclude a short-term obligation from current liabilities? a. Intend to refinance the obligation on a long-term basis. b. Obligation must be due within one year. c. Unconditional right to defer settlement of the liability for at least 12 months. d. Subsequently refinance the obligation on a long-term basis.
D
Which of the following is not considered a characteristic of a liability? a. Present obligation. b. Arises from past events. c. Results in an outflow of resources. d. Liquidation is reasonably expected to require use of existing resources classified as current assets.
D
Which of the following is the proper way to report a probable contingent asset? a. As an accrued amount. b. As deferred revenue. c. As an account receivable with additional disclosure explaining the nature of the contingency. d. As a disclosure only.
D
Which of the following may be a current liability? a. Withheld Income Taxes b. Deposits Received from Customers c. Unearned Revenue d. All of these answers are correct.
D
Which of the following should not be included in the current liabilities section of the statement of financial position? a. Trade notes payable b. Short-term zero-interest-bearing notes payable c. Unearned revenues d. All of these answer choices are included
D
Which of the following is a characteristic of an assurance-type warranty, but not a service-type warranty? a. Warranty liability. b. Warranty expense. c. Unearned warranty revenue. d. Warranty revenue.
A
Provisions are contingent liabilities which are accrued because the likelihood of an unfavorable outcome is a. virtually certain. b. greater than 50%. c. at least 75%. d. possible.
B
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 a. the effective yield or market rate of interest exceeded the stated (nominal) rate. b. the nominal rate of interest exceeded the market rate. c. the market and nominal rates coincided. d. no necessary relationship exists between the two rates.
B
Categories of equity include all of the following except a. Non-controlling interest. b. Accumulated other comprehensive income. c. Liquidating dividends. d. Treasury shares.
C
All of the following are differences between IFRS and U.S. GAAP in according for liabilities except: a. When a bond is issued at a discount, U.S. GAAP records the discount in a separate contra-liability account. IFRS records the bond net of the discount. b. Under IFRS, bond issuance costs reduces the carrying value of the debt. Under U.S. GAAP, these costs are recorded as an asset and amortized to expense over the term of the bond. c. U.S. GAAP, but not IFRS uses the term "troubled debt restructurings." d. U.S. GAAP, but not IFRS uses the term "provisions" for contingent liabilities which are accrued.
D
An employee's net (or take-home) pay is determined by gross earnings minus amounts for income tax withholdings and the employee's a. portion of FICA taxes. b. and employer's portion of FICA taxes. c. portion of FICA taxes, and any mandatory deductions. d. portion of FICA taxes and any voluntary deductions.
D
An 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 reacquisition a. any costs of issuing the bonds must be amortized up to the purchase date. b. the premium must be amortized up to the purchase date. c. interest must be accrued from the last interest date to the purchase date. d. All of these answer choices are correct.
D
Bonds that pay no interest unless the issuing company is profitable are called a. collateral trust bonds. b. debenture bonds. c. revenue bonds. d. income bonds.
D
Contingent assets need not be disclosed in the financial statements or the notes thereto if they are considered? a. Virtually certain. b. Probable. c. Likely. d. Possible but not probable.
D
Each of the following are included in both the current ratio and the acid-test ratio except a. cash. b. short-term investments. c. net receivables. d. inventory.
D
Equity is generally classified into two major categories: a. contributed capital and appropriated capital. b. appropriated capital and retained earnings. c. retained earnings and unearned capital. d. earned capital and contributed capital.
D
Fox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. 37. One step in calculating the issue price of the bonds is to multiply the principal by the table value for a. 10 periods and 10% from the present value of 1 table. b. 20 periods and 5% from the present value of 1 table. c. 10 periods and 8% from the present value of 1 table. d. 20 periods and 4% from the present value of 1 table.
D
How do you determine the acid-test ratio? a. The sum of cash and short-term investments divided by short-term debt. b. Current assets divided by current liabilities. c. Current assets divided by short-term debt. d. The sum of cash, short-term investments and net receivables divided by current liabilities.
D
In a service-type warranty, warranty revenue is a. recognized in the year of sale. b. not recognized. c. recognized only in the last year of the warranty period. d. recognized equally over the warranty period.
D
Long-term debt that matures within one year and is to be converted into shares should be reported a. as a current liability. b. in a special section between liabilities and equity. c. as part current and part non-current. d. as non-current if the refinancing agreement is completed by the end of the year.
D
Note disclosures for long-term debt generally include all of the following except a. assets pledged as security. b. call provisions and conversion privileges. c. restrictions imposed by the creditor. d. names of specific creditors.
D
Share dividends distributable should be classified on the a. income statement as an expense. b. statement of financial position as an asset. c. statement of financial position as a liability. d. statement of financial position as an item of equity.
D
Special characteristics of the corporate form that affect accounting include the a. influence of corporate law. b. use of the share system. c. development of a variety of ownership interests. d. All of these answer choices are correct
D
The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is the a. pro forma method. b. proportional method. c. incremental method. d. either the proportional method or the incremental method.
D
The amount of the liability for compensated absences should be based on 1. the current rates of pay in effect when employees earn the right to compensated absences. 2. the expected rates of pay expected to be paid when employees use compensated time. 3. the present value of the amount expected to be paid in future periods. a. 1. b. 2. c. 3. d. Either 1 or 2 is acceptable.
D
The interest rate written in the terms of the bond indenture is known as the a. coupon rate only. b. nominal rate only. c. stated rate only. d. coupon rate, nominal rate, or stated rate.
D
The numerator of the acid-test ratio consists of a. total current assets. b. cash and short-term investments. c. cash and net receivables. d. cash, short-term investments, and net receivables
D
When a note payable is exchanged for property, goods, or services, the stated interest rate is presumed to be fair unless a. no interest rate is stated. b. the stated interest rate is unreasonable. c. the stated face amount of the note is materially different from the current cash sales price for similar items or from current fair value of the note. d. All of these answer choices are correct.
D
When a note payable is issued for property, goods, or services, the present value of the note may be measured by a. the fair value of the property, goods, or services. b. the fair value of the note. c. using an imputed interest rate to discount all future payments on the note. d. All of these answer choices are correct
D
When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will a. increase if the bonds were issued at a discount. b. decrease if the bonds were issued at a premium. c. increase if the bonds were issued at a premium. d. increase if the bonds were issued at either a discount or a premium.
D
Which of the following is a current liability? a. A long-term debt maturing currently, which is to be paid with cash in a sinking fund b. A long-term debt maturing currently, which is to be retired with proceeds from a new debt issue c. A long-term debt maturing currently, which is to be converted into ordinary shares d. None of these answer choices are correct.
D
Which of the following is an example of "off-balance-sheet financing"? 1. Non-consolidated subsidiary. 2. Special purpose entity. 3. Operating leases. a. 1 b. 2 c. 3 d. All of these are examples of "off-balance-sheet financing."
D
Which of the following must be disclosed relative to long-term debt maturities and sinking fund requirements? a. The present value of future payments for sinking fund requirements and long-term debt maturities during each of the next five years. b. The present value of scheduled interest payments on long-term debt during each of the next five years. c. The amount of scheduled interest payments on long-term debt during each of the next five years. d. The amount of future payments for sinking fund requirements and long-term debt maturities during each of the next five years.
D
Which of the following statements is correct? a. A company may exclude a short-term obligation from current liabilities if it intends to refinance the obligation on a long-term basis. b. A company may exclude a short-term obligation from current liabilities if it has an unconditional right to defer settlement of the liability for at least 12 months. c. A company may exclude a short-term obligation from current liabilities if it is paid off after the statement of financial position date and subsequently replaced by long-term debt before the statement of financial position is issued. d. None of these answer choices are correct.
D
Which of the following statements is false? a. A company may exclude a short-term obligation from current liabilities if it intends to refinance the obligation on a long-term basis and have an unconditional right to defer settlement of the liability for at least 12 months. b. Cash dividends should be recorded as a liability when they are declared by the board of directors. c. Under the cash basis method, warranty costs are charged to expense as they are paid. d. Social security taxes withheld from employees' payroll checks should never be recorded as a liability since the employer will eventually remit the amounts withheld to the appropriate taxing authority.
D
Which of the following terms is associated with recognizing a provision? a. Possible but not probable. b. Likely. c. Remote. d. Probable.
D
A debt instrument with no ready market is exchanged for property whose fair value is currently indeterminable. When such a transaction takes place a. the present value of the debt instrument must be approximated using an imputed interest rate. b. it should not be recorded on the books of either party until the fair value of the property becomes evident. c. the board of directors of the entity receiving the property should estimate a value for the property that will serve as a basis for the transaction. d. the directors of both entities involved in the transaction should negotiate a value to be assigned to the property.
A
All of the following are true regarding the presentation of current liabilities in the statement of financial position except a. The non-current liabilities section follows the current liabilities section. b. Current liabilities may be listed in order of maturity, in descending order of magnitude or in order of liquidity preference. c. Current liabilities are generally recorded at their full maturity values. d. Current liabilities should not be offset against the assets that will be used to liquidate them.
A
Among the short-term obligations of Lance Company as of December 31, the statement of financial position date, are notes payable totaling $250,000 with the Madison National Bank. These are 90-day notes, renewable for another 90-day period. These notes should be classified on the statement of financial position of Lance Company as a. current liabilities. b. deferred charges. c. non-current liabilities. d. intermediate debt.
A
Examples of contingent assets include all of the following except: a. Unrealized gain on the sale of investments. b. Pending lawsuit with a favorable outcome. c. Tax refund disputed by the government but with a possible favorable outcome. d. Promise of land to be donated by city as an enticement to move manufacturing facilities.
A
Information available prior to the issuance of the financial statements indicates that it is probable that, at the date of the financial statements, a company has a present obligation related to product warranties. The amount of the expense involved can be reasonably estimated. Based on the above facts, the estimated warranty expense should be a. accrued. b. disclosed but not accrued. c. neither accrued nor disclosed. d. classified as an appropriation of retained earnings.
A
The pre-emptive right of an ordinary shareholder is the right to a. share proportionately in corporate assets upon liquidation. b. share proportionately in any new issues of stock of the same class. c. receive cash dividends before they are distributed to preference shareholders. d. exclude preference shareholders from voting rights.
B
The term used for bonds that are unsecured as to principal is a. junk bonds. b. debenture bonds. c. indebenture bonds. d. callable bonds.
B
To record an environmental liability, the cost associated with the liability is a. expensed. b. included in the carrying amount of the related long-lived asset. c. included in a separate account. d. None of these answer choices are correct
B
Under what conditions is an employer required to accrue a liability for sick pay? a. Sick pay benefits can be reasonably estimated. b. Sick pay benefits vest. c. Sick pay benefits equal 100% of the pay. d. Sick pay benefits accumulate
B
Which of the following is not to be considered considered when evaluating whether or not to record a liability for pending litigation? a. Time period in which the underlying cause of action occurred. b. The type of litigation involved. c. The probability of an unfavorable outcome. d. The ability to make a reasonable estimate of the amount of the loss.
B
"In-substance defeasance" is a term used to refer to an arrangement whereby a. a company gets another company to cover its payments due on long-term debt. b. a governmental unit issues debt instruments to corporations. c. a company provides for the future repayment of a long-term debt by placing purchased securities in an irrevocable trust. d. a company legally extinguishes debt before its due date.
C
A company is legally obligated for the costs associated with the retirement of a long-lived asset a. only when it hires another party to perform the retirement activities. b. only if it performs the activities with its own workforce and equipment. c. whether it hires another party to perform the retirement activities or performs the activities itself. d. only when the obligation arises at the outset of the asset's use.
C
A corporation borrowed money from a bank to build a building. The long-term note signed by the corporation is secured by a mortgage that pledges title to the building as security for the loan. The corporation is to pay the bank $80,000 each year for 10 years to repay the loan. Which of the following relationships can you expect to apply to the situation? a. The balance of mortgage payable at a given statement of financial position date will be reported as a non-current liability. b. The balance of mortgage payable will remain a constant amount over the 10-year period. c. The amount of interest expense will decrease each period the loan is outstanding, while the portion of the annual payment applied to the loan principal will increase each period. d. The amount of interest expense will remain constant over the 10-year period.
C
A discount on notes payable is charged to interest expense a. equally over the life of the note. b. only in the year the note is issued. c. using the effective-interest method. d. only in the year the note matures.
C
A liability for compensated absences such as vacations, for which it is expected that employees will be paid, should a. be accrued during the period when the compensated time is expected to be used by employees. b. be accrued during the period following vesting. c. be accrued during the period when earned. d. not be accrued unless a written contractual obligation exists.
C
Assume that a manufacturing corporation has (1) good quality control, (2) a one-year operating cycle, (3) a relatively stable pattern of annual sales, and (4) a continuing policy of guaranteeing new products against defects for three years that has resulted in material but rather stable warranty repair and replacement costs. Any liability for the warranty a. should be reported as non-current. b. should be reported as current. c. should be reported as part current and part non-current. d. need not be disclosed.
C
Fox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. Another step in calculating the issue price of the bonds is to a. multiply $10,000 by the table value for 10 periods and 10% from the present value of an annuity table. b. multiply $10,000 by the table value for 20 periods and 5% from the present value of an annuity table. c. multiply $10,000 by the table value for 20 periods and 4% from the present value of an annuity table. d. None of these answer choices are correct
C
If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a a. debit to Interest Payable. b. credit to Interest Receivable. c. credit to Interest Expense. d. credit to Unearned Interest.
C
In a debt extinguishment in which the debt is continued with modified terms and the carrying value of the debt is more than the fair value of the debt, a. a loss should be recognized by the debtor. b. a new effective-interest rate must be computed. c. a gain should be recognized by the debtor. d. no interest expense should be recognized in the future.
C
Many companies believe that off-balance-sheet financing a. is attempting to conceal the debt from shareholders by having no information about the debt included in the balance sheet. b. wishes to confine all information related to the debt to the income statement and the statement of cash flows. c. can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost. d. is in violation of IFRS.
C
Of the following items, the only one which should not be classified as a current liability is a. current maturities of long-term debt. b. sales taxes payable. c. short-term obligations expected to be refinanced. d. unearned revenues.
C
Ortiz Corporation, a manufacturer of household paints, is preparing annual financial statements at December 31, 2015. Because of a recently proven health hazard in one of its paints, the government has clearly indicated its intention of having Ortiz recall all cans of this paint sold in the last six months. The management of Ortiz estimates that this recall would cost $800,000. What accounting recognition, if any, should be accorded this situation? a. No recognition b. Note disclosure only c. Operating expense of $800,000 and liability of $800,000 d. Appropriation of retained earnings of $800,000
C
Shareholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders a. are entitled to a dividend every year in which the business earns a profit. b. have the rights to specific assets of the business. c. bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership. d. can negotiate individual contracts on behalf of the enterprise.
C
The debt to assets ratio is computed by dividing a. current liabilities by total assets. b. long-term liabilities by total assets. c. total liabilities by total assets. d. total assets by total liabilities
C
The printing costs and legal fees associated with the issuance of bonds should a. be expensed when incurred. b. be reported as a deduction from the face amount of bonds payable. c. be recorded as a reduction of the bond issue amount and then amortized over the life of the bonds. d. not be reported as an expense until the period the bonds mature or are retired.
C
The times interest earned is computed by dividing a. net income by interest expense. b. income before taxes by interest expense. c. income before income taxes and interest expense by interest expense. d. net income and interest expense by interest expense.
C
Which of the following best describes the accounting for assurance-type warranty costs? a. Expensed when paid. b. Expensed when warranty claims are certain. c. Expensed based on estimate in year of sale. d. Expensed when incurred.
C
Which of the following is a characteristic of a current liability but not a non-current liability? a. Unavoidable obligation. b. Present obligation that entails settlement by probable future transfer or use of cash, goods, or services. c. Settlement is expected within the normal operating cycle, or within 12 months after the reporting date. d. Transaction or other event creating the liability has already occurred.
C
Which of the following is a current liability? a. Preference dividends in arrears b. A dividend payable in the form of additional shares c. A cash dividend payable to preference shareholders d. All of these answer choices are correct.
C
Which of the following is not a difference between IFRS and U.S. GAAP in according for non-current liabilities? a. Non-current liabilities follow current liabilities on the statement of financial position under U.S. GAAP, but precede current liabilities under IFRS. b. The criteria for recognizing environment liabilities is more stringent under U.S. GAAP compared to IFRS. c. Bond issuance costs are recorded as a reduction of the carrying value of the debt under U.S. GAAP but are recorded as an asset and amortized to expense over the term of the debt under IFRS. d. Under U.S. GAAP, bonds payable is recorded at the face amount and any premium or discount is recorded in a separate account. Under IFRS, bonds payable is recorded at the carrying value so no separate premium or discount accounts are used.
C
Which of the following is not acceptable treatment for the presentation of current liabilities? a. Listing current liabilities in order of maturity b. Listing current liabilities according to amount c. Offsetting current liabilities against assets that are to be applied to their liquidation d. Showing current liabilities in order of liquidation preference
C
Which of the following items is a current liability? a. Bonds (for which there is an adequate sinking fund properly classified as a long-term investment) due in three months. b. Bonds due in three years. c. Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months. d. Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue.
C
Which of the following situations may give rise to unearned revenue? a. Providing trade credit to customers. b. Selling inventory. c. Selling magazine subscriptions. d. Providing manufacturer warranties
C
A contingent liability a. always exists as a liability but its amount and due date are indeterminable. b. is accrued even though not probable. c. is always the result of a loss contingency. d. is not reported as a liability if not probable.
D
A primary source of shareholders' equity is a. income retained by the corporation. b. appropriated retained earnings. c. contributions by shareholders. d. both income retained by the corporation and contributions by holders.
D
Accounting for product warranty costs under an assurance-type warranty a. is required for income tax purposes. b. is frequently justified on the basis of expediency when warranty costs are immaterial. c. charges an expense account when the seller performs in compliance with the warranty. d. represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale.
D
"Gains" on sales of treasury shares (using the cost method) should be credited to a. share premium—treasury. b. share capital. c. retained earnings. d. other income.
A
A dividend which is a return to shareholders of a portion of their original investments is a a. liquidating dividend. b. property dividend. c. liability dividend. d. participating dividend.
A
At the date of declaration of an ordinary share dividend, the entry should not include a. a credit to Share Capital—Ordinary. b. a credit to Ordinary Share Dividend Distributable. c. a debit to Retained Earnings. d. All of these are acceptable.
A
Direct costs incurred to sell shares such as underwriting costs should be accounted for as 1. a reduction of share premium. 2. an expense of the period in which the shares are issued. 3. an intangible asset. a. 1 b. 2 c. 3 d. 1 or 3
A
Dunn Trading Co. issued 2,500 ordinary shares, The shares have a ₤2 par value and sold for ₤12 per share. Dunn incurred ₤3,000 to sell the shares related to underwriting costs and legal fees. Dunn Trading Co. will record the ₤3,000 as a. A debit to Share Premium—Ordinary. b. A debit to Financing Expense. c. A credit to Share Premium—Ordinary. d. A credit to Share Capital—Ordinary.
A
Houser Corporation owns 4,000,000 shares of Baha Corporation. On December 31, 2015, Houser distributed these shares as a dividend to its shareholders. This is an example of a a. property dividend. b. share dividend. c. liquidating dividend. d. cash dividend.
A
How should cumulative preference dividends in arrears be shown in a corporation's statement of financial position? a. Note disclosure b. Increase in shareholders' equity c. Increase in current liabilities d. Increase in current liabilities for the amount expected to be declared within the year or operating cycle, and increase in non-current liabilities for the balance
A
In January 2015, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par ordinary shares for $15 per share. On July 1, 2015, Finley Corporation reacquired 1,000 shares of its outstanding shares for $12 per share. The acquisition of these treasury shares a. decreased total shareholders' equity. b. increased total shareholders' equity. c. did not change total shareholders' equity. d. decreased the number of issued shares.
A
Noncumulative preferred dividends in arrears a. are not paid or disclosed. b. must be paid before any other cash dividends can be distributed. c. are disclosed as a liability until paid. d. are paid to preference shareholders if sufficient funds remain after payment of the current preference dividend.
A
Ordinary shareholders' equity divided by the number of ordinary shares outstanding is called a. book value per share. b. par value per share. c. stated value per share. d. market value per share.
A
Porter Corp. purchased its own par value shares on January 1, 2015 for $20,000 and debited the treasury shares account for the purchase price. The shares were subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from a. share premium—treasury to the extent that previous net "gains" from sales of the same class of stock are included therein; otherwise, from retained earnings. b. share premium—treasury without regard as to whether or not there have been previous net "gains" from sales of the same class of shares included therein. c. retained earnings. d. net income
A
The features most frequently associated with preference shares include all of the following except a. Callable at the option of the shareholder. b. Convertible into ordinary shares. c. Non-voting. d. Preference as to assets in the event of liquidation
A
The return on ordinary share equity is calculated by dividing a. net income less preference dividends by average ordinary shareholders' equity. b. net income by average ordinary shareholders' equity. c. net income less preference dividends by ending ordinary shareholders' equity. d. net income by ending ordinary shareholders' equity.
A
Which of the following represents the total number of shares that a corporation may issue under the terms of its charter? a. authorized shares b. issued shares c. unissued shares d. outstanding shares
A
A "secret reserve" will be created if a. inadequate depreciation is charged to income. b. a capital expenditure is charged to expense. c. liabilities are understated. d. shareholders' equity is overstated
B
A feature common to both share splits and share dividends is a. a transfer to earned capital of a corporation. b. that there is no effect on total equity. c. an increase in total liabilities of a corporation. d. a reduction in the contributed capital of a corporation
B
A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to a. Retained Earnings. b. Share Premium. c. Accumulated Depletion. d. Accumulated Depreciation.
B
According to IFRS, redeemable preference shares should be a. included with ordinary shares. b. included as a liability. c. excluded from the statement of financial position. d. included as a contra item in shareholders' equity.
B
An entry is not made on the a. date of declaration. b. date of record. c. date of payment. d. An entry is made on all of these dates.
B
How should a "gain" from the sale of treasury shares be reflected when using the cost method of recording treasury shares transactions? a. As other income shown on the income statement. b. As share premium from treasury share transactions. c. As an increase in the amount shown for share capital. d. As an increase in the retained earnings amount.
B
If management wishes to "capitalize" part of the earnings, it may issue a a. cash dividend. b. share dividend. c. property dividend. d. liquidating dividend.
B
Ordinary no-par shares a. Are considered illegal. b. May be subject to high taxes. c. May be sold at a premium. d. All of these answer choices are correct
B
Quirk Corporation issued a 100% share dividend of its ordinary shares which had a par value of $10 before and after the dividend. At what amount should retained earnings be capitalized for the additional shares issued? a. There should be no capitalization of retained earnings. b. Par value c. Fair value on the declaration date d. Fair value on the payment date
B
The balance in Ordinary Share Dividend Distributable should be reported as a(n) a. deduction from share capital—ordinary. b. addition to share capital—ordinary. c. current liability. d. contra current asset.
B
The cumulative feature of preference shares a. limits the amount of cumulative dividends to the par value of the preference shares. b. requires that preference dividends not paid in any year must be made up in a later year before dividends are distributed to ordinary shareholders. c. means that the shareholder can accumulate preference shares until it is equal to the par value of ordinary shares at which time it can be converted into ordinary shares. d. enables a preference shareholder to accumulate dividends until they equal the par value of the shares and receive the shares in place of the cash dividends.
B
The declaration and issuance of a share dividend a. increases ordinary shares outstanding and increases total equity. b. decreases retained earnings but does not change total equity. c. may increase share premium but does not change total equity. d. increases retained earnings and increases total equity.
B
The payout ratio can be calculated by dividing a. dividends per share by earnings per share. b. cash dividends by net income less preference dividends. c. cash dividends by market price per share. d. dividends per share by earnings per share and dividing cash dividends by net income less preference dividends.
B
Trading on the equity is: a. The ratio of the company's cash dividends to net income. b. A return on assets that is higher than the cost of financing these assets. c. The amount each share would receive if the company were liquidated. d. The "Revaluation Surplus" related to increases or decreases in items such as property, plant, and equipment
B
When a corporation issues its ordinary shares in payment for services, the least appropriate basis for recording the transaction is the a. fair value of the services received. b. par value of the shares issued. c. fair value of the shares issued. d. Any of these provides an appropriate basis for recording the transaction.
B
When preference shares share ratably with the ordinary shareholders in any profit distributions beyond the prescribed rate this is known as the a. Cumulative feature. b. Participating feature. c. Callable feature. d. Redeemable feature.
B
Which dividends do not reduce equity? a. Cash dividends b. Share dividends c. Property dividends d. Liquidating dividends
B
Which of the following is a required statement under IFRS? Stmnt of Stmnt of finac positin change in equity a.Yes No b.Yes Yes c.No No d.No Yes
B
Which of the following is not a legal restriction related to profit distributions by a corporation? a. The amount distributed to owners must be in compliance with the laws governing corporations. b. The amount distributed in any one year can never exceed the net income reported for that year. c. Profit distributions must be formally approved by the board of directors. d. Dividends must be in full agreement with the capital contracts as to preferences and participation.
B
Which one of the following disclosures should be made in the equity section of the statement of financial position, rather than in the notes to the financial statements? a. Dividend preferences b. Liquidation preferences c. Call prices d. Conversion or exercise prices
B
At the date of the financial statements, ordinary shares issued would exceed ordinary shares outstanding as a result of the a. declaration of a share split. b. declaration of a share dividend. c. purchase of treasury shares. d. payment in full of subscribed shares.
C
Cash dividends are paid on the basis of the number of shares a. authorized. b. issued. c. outstanding. d. outstanding less the number of treasury shares.
C
Cumulative preference dividends in arrears should be shown in a corporation's statement of financial position as a. an increase in current liabilities. b. an increase in equity. c. a footnote. d. an increase in current liabilities for the current portion and non-current liabilities for the long-term portion.
C
Dividends are not paid on a. noncumulative preference shares. b. nonparticipating preference shares. c. treasury shares. d. Dividends are paid on all of these
C
Liquidating dividends a. Are prohibited under IFRS. b. Require a credit to Share Capital—Ordinary. c. Reduce amounts paid-in by shareholders. d. All of these answer choices are correct.
C
What effect does the issuance of a 2-for-1 share split have on each of the following? Par Value per Share Retained Earnings a.No effect No effect b.Increase No effect c.Decrease No effect d.Decrease Decrease
C
When treasury shares are purchased for more than the par value of the shares and the cost method is used to account for treasury shares, what account(s) should be debited? a. Treasury shares for the par value and share premium for the excess of the purchase price over the par value. b. share premium for the purchase price. c. Treasury shares for the purchase price. d. Treasury shares for the par value and retained earnings for the excess of the purchase price over the par value.
C
Which of the following best describes a possible result of treasury share transactions by a corporation? a. May increase but not decrease retained earnings. b. May increase net income if the cost method is used. c. May decrease but not increase retained earnings. d. May decrease but not increase net income.
C
Which of the following features of preference shares makes the security more like debt than an equity instrument? a. Participating b. Voting c. Redeemable d. Noncumulative
C
Which of the following statements about property dividends is not true? a. A property dividend is usually in the form of securities of other companies. b. A property dividend is also called a dividend in kind. c. The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred. d. All of these statements are true
C
Younger Company has outstanding both ordinary shares and nonparticipating, non-cumulative preference shares. The liquidation value of the preference shares is equal to its par value. The book value per share of the ordinary shares is unaffected by a. the declaration of a share dividend on preference payable in preference shares when the market price of the preference is equal to its par value. b. the declaration of a share dividend on ordinary shares payable in ordinary shares when the market price of the ordinary shares is equal to its par value. c. the payment of a previously declared cash dividend on the ordinary shares. d. a 2-for-1 split of the ordinary shares.
C
Shares that have a fixed per-share amount printed on each share certificate are called a. stated value shares. b. fixed value shares. c. uniform value shares. d. par value shares.
D
The issuer of an ordinary share dividend to ordinary shareholders should transfer from retained earnings to contributed capital an amount equal to the a. fair value of the shares issued. b. book value of the shares issued. c. minimum legal requirements. d. par or stated value of the shares issued
D
Treasury shares are a. shares held as an investment by the treasurer of the corporation. b. shares held as an investment of the corporation. c. issued and outstanding shares. d. issued but not outstanding shares.
D
Bonds for which the owners' names are not registered with the issuing corporation are called a. bearer bonds. b. term bonds. c. debenture bonds. d. secured bonds.
A
Which of the following is the proper way to report a contingent asset considered probable? a. As an asset. b. As deferred revenue. c. As a disclosure only. d. No disclosure or accrual required.
C
The amortization of a premium on bonds payable a. decreases the balance of the bonds payable account. b. increases the amount of interest expense reported. c. increases the carrying amount of the bond. d. increases the cash payment to bondholders.
A
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. bond debenture. c. registered bond. d. bond coupon
A
The pre-emptive right enables a shareholder to a. share proportionately in any new issues of shares of the same class. b. receive cash dividends before other classes of stock without the pre-emptive right. c. sell ordinary shares back to the corporation at the option of the shareholder. d. receive the same amount of dividends on a percentage basis as the preference shareholders.
A
The ratio of current assets to current liabilities is called the a. current ratio. b. acid-test ratio. c. current asset turnover ratio. d. current liability turnover ratio.
A
What condition is necessary to recognize an environmental liability? a. Company has an existing legal obligation and can reasonably estimate the amount of the liability. b. Company can reasonably estimate the amount of the liability. c. Company has an existing legal obligation. d. Obligation event has occurred.
A
What is the relationship between current liabilities and a company's operating cycle? a. Liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if more). b. Current liabilities are the result of operating transactions. c. Current liabilities can't exceed the amount incurred in one operating cycle. d. There is no relationship between the two.
A
What is the relationship between present value and the concept of a liability? a. Present values are used to measure certain liabilities. b. Present values are not used to measure liabilities. c. Present values are used to measure all liabilities. d. Present values are only used to measure non-current liabilities.
A
Which of the following is not a correct statement about sales taxes? a. Sales taxes are an expense of the seller. b. Many companies record sales taxes in the sales account. c. If sales taxes are included in the sales account, the first step to find the amount of sales taxes is to divide sales by 1 plus the sales tax rate. d. All of these answer choices are true.
A
Which of the following is the proper way to report a contingent asset, receipt of which is virtually certain? a. As an asset. b. As unearned revenue. c. As a disclosure only. d. No disclosure or accrual required.
A
A company has not declared a dividend on its cumulative preference shares for the past three years. What is the required accounting treatment or disclosure in this situation? a. Record a liability for cumulative amount of preference shares dividends not declared. b. Disclose the amount of the dividends in arrears. c. Record a liability for the current year's dividends only. d. No disclosure or recognition is required.
B
An electronics store is running a promotion where for every video game purchased, the customer receives a coupon upon checkout to purchase a second game at a 50% discount. The coupons expire in one year. The store normally recognized a gross profit margin of 40% of the selling price on video games. How would the store account for a purchase using the discount coupon? a. The reduction in sales price attributed to the coupon is recognized as premium expense. b. The difference between the cost of the video game and the cash received is recognized as premium expense. c. Premium expense is not recognized. d. The difference between the cost of the video game and the selling price prior to the coupon is recognized as premium expense
B
Bond issuance costs, including the printing costs and legal fees associated with the issuance, should be a. expensed in the period when the debt is issued. b. recorded as a reduction in the carrying value of bonds payable. c. accumulated in a deferred charge account and amortized over the life of the bonds. d. reported as an expense in the period the bonds mature or are retired.
B
Espinosa Co. has a provision to accrue. The amount can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The amount of the accrual should be a. zero. b. the mid point of the range. c. the minimum of the range. d. the maximum of the range.
B
Hiro Corp. issues shares which bear the ultimate risks of loss and receive the benefit of success. These shares are not guaranteed dividends nor assets upon dissolution. These shares are considered Ordinary Preference a. Yes Yes b.Yes No c. No Yes d. No No
B
In a debt extinguishment in which the debt is settled by a transfer of assets with a fair value less than the carrying amount of the debt, the debtor would recognize a. no gain or loss on the settlement. b. a gain on the settlement. c. a loss on the settlement. d. None of these answer choices are correct.
B
In a debt settlement in which the debt is continued with modified terms, a gain should be recognized at the date of settlement whenever the a. carrying amount of the debt is less than the total future cash flows. b. carrying amount of the debt is greater than the present value of the future cash flows. c. present value of the debt is less than the present value of the future cash flows. d. present value of the debt is greater than the present value of the future cash flows.
B
In accounting for compensated absences, the difference between vested rights and accumulated rights is a. vested rights are normally for a longer period of employment than are accumu¬lated rights. b. vested rights are not contingent upon an employee's future service. c. vested rights are a legal and binding obligation on the company, whereas accumulated rights expire at the end of the accounting period in which they arose. d. vested rights carry a stipulated dollar amount that is owed to the employee; accumulated rights do not represent monetary compensation.
B
