Intermediate 2
On January 1, 2019, Stone Co. acquired 8%, 5-year bonds of Pebble Inc. with a face value of $300,000 for $312,000. It plans to hold the bonds to maturity. Interest is payable on June 30 and December 31. Stone uses the straight-line method to account for amortization of the premium. How much should Stone amortize on June 30, 2019?
$1200
ABC Company borrows money at a bank by issuing a $70,000, 3-month, non-interest-bearing note. The note is discounted on a 10% basis. What amount of cash will ABC Company receive from the bank?
$68,250
ABC Company owns 30% of the outstanding shares of Teal Company. At the beginning of the current year, the carrying value of Teal's stock on ABC's balance sheet was $60,000. During the period, Teal paid dividends of $10,000 and reported a net income of $40,000. What is the carrying value of Teal's stock on ABC's balance sheet at the end of the year?
$69,000
Which of the following statements is not true?
A company is not required to provide product warranty disclosures as long as it accrues for product warranty expense.
Which order would most likely be seen on a balance sheet when presenting current liabilities?
Accounts payable, notes payable, accrued liability items, unearned revenue
How are unrealized gains and losses on available-for-sale debt securities reported in the financial statements?
As other comprehensive income
Which of the following statements regarding equity securities is not true?
Dividend income, but not realized gains and losses on sales, is included in net income each period.
Which of the following statements regarding equity securities is true?
Equity securities are reported at fair value on the balance sheet date, and unrealized holding gains and losses are included in income of the current period.
Which payroll tax is imposed on both the employee and the employer?
FICA tax
__________ refers to a company's ability to use its financial resources to adapt to change and to take advantage of opportunities.
Financial flexibility
When recording long-term notes receivable, which of the following statements is correct?
Long-term notes receivable are recorded at the fair value of the property, goods, or services or the fair value of the note receivable, whichever is more clearly determinable.
Which of the following statements is not true?
Management may never exclude short-term debt from current liabilities.
Which of the following is a legal liability?
Sales taxes payable to the state
Which of the following disclosures is not required for investments in securities by current GAAP?
The circumstances leading to the decision to sell or transfer a trading security
According to current U.S. GAAP, which of the following is not a condition suggesting that an accrual for vacation pay be made?
The obligation must relate to rights that vest.
Which of the following statements regarding trading securities is true?
Trading securities are reported at fair value on the balance sheet date, and unrealized holding gains and losses are included in income of the current period.
Which of the following statements is not true?
When transferring into the available-for-sale category from the held-to-maturity category, the difference between the held-to-maturity security's amortized cost and the fair value at the time of transfer gives rise to an unrealized holding gain or loss, which is included in income.
With regard to liabilities, liquidity refers to
a company's ability to convert its assets to cash to pay its liabilities.
Under the equity method, dividends received by the investor should be recorded as
a reduction in the carrying value of the investment.
A(n) __________ warranty is a warranty in which the seller promises the customer that the good or service will function as specified in the contract amounts.
assurance-type
All of the following are usually current liabilities except
bonds payable.
On August 1, 2019, ABC Company sold 150 shares of Teal Company's stock for $15,400. On the previous balance sheet, the stock had a fair value of $14,400. The journal entry to record the sale will include a
credit to Gain on Sale of Trading Securities for $1,000.
Investments in available-for-sale securities are classified as
current or long-term assets on the balance sheet.
At the beginning of the year, ABC Company pays an annual insurance premium of $6,000 to cover the lives of its officers. The journal entry to record this transaction will include a
debit to Prepaid Insurance for $6,000.
All of the following statements regarding held-to-maturity debt securities are true except
debt securities should be initially recorded at face value
Existing claims related to product warranties and litigation as of year-end indicate that it is probable that a liability has been incurred. However, as of year-end, the exact amount of the obligation cannot be reasonably estimated. Based on these facts, an estimated loss contingency should be
disclosed but not accrued.
Under the CECL model, at each reporting date, a company will report its held-to-maturity investment using
the Allowance for Credit Losses account, which is a contra account that reduces the amortized cost basis of the held-to-maturity investment to the amount expected to be collected.
Investments in debt securities that are purchased and held principally to sell in the near term are classified as
trading securities
A derivative financial instrument derives its value from any of the following except
underlying liabilities.
All of the following are examples of legal liabilities except
vacation payable.
Companies often use derivatives to reduce the risk of adverse changes in all of the following except
inventory prices.
Crispy Breakfast places a coupon in each box of its cereal product. Customers may send in five coupons and $3, and the company will send them a recipe book. Sufficient books were purchased at a cost of $5 each. A total of 500,000 boxes of product were sold in the current year. It was estimated that 4% of the coupons would be redeemed. During the current year, 9,000 coupons were redeemed. What is Crispy's premium expense for the current year?
$8,000
A portion of any premium or discount is amortized over the remaining life of the bonds. This amortization is equal to the difference between the amount of interest income and the cash receipt. This process is known as the __________ of amortization
effective interest method
Long-term notes receivable are recorded at the __________ of the property, goods, or services or the __________ of the note receivable, whichever is more clearly determinable.
fair value; fair value
Realized gains/losses on available-for-sale securities are reported as __________. Unrealized gains/losses on available-for-sale securities are reported as __________.
income; other comprehensive income
A(n) __________ in the fair value of investment securities is an unrealized holding gain, while a(n) __________ in the fair value of investment securities is an unrealized holding loss.
increase; decrease
Realized gains and losses on available-for-sale investments are reported
on the income statement.
In addition to the percentage of stock ownership, the following factors could all contribute to significant influence over the company being invested in except
participation in the policy making of the investee's competitor.
ABC Company purchased bonds and classified them as available-for-sale securities. The bonds had a face value of $15,000 and were purchased at par. ABC later decides to reclassify this investment as a trading security when the bonds have a fair value of $18,500. The journal entry to reclassify these securities will include a
credit to Gain on Transfer of Securities for $3,500.
ABC Company purchased an investment in bonds of XYZ Company 10% bonds at par value of $30,000. Interest is paid annually on the bonds. ABC Company's journal entry to record the interest should include a
credit to Interest Income for $3,000.
Chocolate's Sweet Shop includes the amount of sales taxes collected directly in the price charged for merchandise, and the total amount is credited to Sales. During January, the Sales account was credited for $239,680. The January 31 adjusting entry to account for a 7% state sales tax would include a
credit to Sales Taxes Payable.
On December 31, 2019, ABC Company's available-for-sale securities have a fair value of $84,000. On December 31, 2020, the same available-for-sale securities have a fair value of $90,000. The journal entry to report the portfolio at fair market value on December 31, 2020, will include a
credit to Unrealized Holding Gain—Available-for-Sale Securities for $6,000.