Intermediate II Quiz Questions (Final Exam Review)

Discount on bonds payable is a account. a. contra liability b. adjunct liability c. liability d. None of the above

A

Valuation allowance account is a ___ account associated with Deferred tax asset account. a. Contra b. Adjunct c. Either a. or b. d. None of a. or b.

A

Which of the following has the greatest number of shares for a company? A. Authorized shares B. Issued shares C. Outstanding shares D. Treasury shares

A

A company does not make journal entries on which of the following dates? A. Date of Declaration B. Date of Record C. Date of Payment D. Any of the above

B

A company should accrue a liability for a loss contingency if it is that assets have been impaired and the amount of potential loss can be reasonably estimated. a. reasonably possible b. probable c. remote d. none of the above

B

Defined benefit pension plans are used _____ by companies in recent years than before. a. More b. Less c. The same d. None of the above

B

The landlord of an office building is called __________. A. Lessee B. Lessor C. Either of A. or B. D. None of A. or B.

B

Which of the following is an example of fair value hedging? a. An interest rate swap to synthetically convert floating rate debt into fixed rate debt. b. An interest rate swap to synthetically convert fixed rate debt into floating rate debt. c. Both a. and b. d. Neither a. nor b.

B

Which of the following statements is NOT correct? A. Debt financing is more favorable than equity financing in terms of saving tax. B. Creditors usually have voting rights. C. Creditors have priority in getting their money back than stockholders when the firm goes bankrupt. D. Shareholders have potential gains or losses depending on firm performance.

B

Which of the following is an example of an item in taxable income but not book income? a. Dividend income deduction b. R&D tax credits c. Alternative energy tax credits d. All of the above

D

A bond with a face value of $100,000 is sold at 102,000 on issuance date. The bond is sold at A. A premium B. A discount C. Par D. None of the above

A

A discount on bonds should be reported in the balance sheet: a. As a reduction in bond issue costs. b. As a reduction of the face amount of the bond. c. As a deferred credit. d. None of the above

A

A firm who enters into a call option to buy oil at a preset price hopes the oil price to a. Increase b. Decrease c. Stay the same d. None of the above

A

A firm who enters into a future contract to buy oil at a preset price hopes the oil price to a. Increase b. Decrease c. Stay the same d. None of the above

A

A loss contingency should be accrued in a company's financial statements only if the likelihood that a liability has been incurred is: A. Probable and the amount of the loss can be reasonably estimated. B. Reasonably possible and the amount of the loss is known. C. At least remotely possible and the amount of the loss is known. D. Reasonably possible and the amount of the loss can be reasonably estimated.

A

A net operating loss occurs for tax purpose when a. Tax-deductible expenses exceed taxable revenues b. Taxable revenues exceed tax-deductible expenses c. Either a. or b. d. None of a. or b.

A

Earnings per share measures the income earned by each share of ____________. A. Common stock B. Preferred stock C. Restricted stock D. Any type of stock

A

Firms do NOT make journal entry on the grant date if the stocks granted to employees are _____. A. Restricted stock B. Unrestricted stock C. Either a. or b. D. None of a. or b.

A

Gain contingencies usually are recognized in the income statement when: a. The gain is realized. b. The gain is probable and the amount is known. c. The gain is probable and the amount can be reasonably estimated. d. The gain is reasonably possible and the amount can be reasonably estimated.

A

If a temporary difference causes taxable income to be greater than book income at origin, this will result in A. Deferred tax asset B. Deferred tax liability C. Either a. or b. D. None of a. or b.

A

If a temporary difference causes taxable income to be greater than book income, this will result in a. Deferred tax asset b. Deferred tax liability c. Either a. or b. d. None of a. or b.

A

Ordinarily, the proceeds from the sale of a bond issue will be equal to the: a. Present value of the face amount plus the present value of the stream of interest payments. b. Total of the face amount plus all interest payments. c. Face amount of the bond. d. Face amount of the bond plus the present value of the stream of interest payments.

A

Sources of shareholders' equity include each of the following except: A. Amounts borrowed from financial institutions. B. Amounts earned by the corporation on behalf of its shareholders. C. Accumulated other comprehensive income. D. Amounts invested by shareholders in the corporation.

A

Stock dividends issued to common stock shareholders will result in a (an) ______ in weighted average number of common shares outstanding. A. Increase B. Decrease C. No change D. Any of the above

A

The beginning of a six-year finance lease is January 1, 2021. The agreement specifies equal annual lease payments on January 1 of each year. For the lessee, the first payment on January 1, 2021 includes: Interest Expense Reduction of the Expense Lease Liability A. No Yes B. Yes No C. Yes Yes D. No No

A

The compensation associated with executive stock option plans (with certain vesting period) is: A. The estimated fair value of the options. B. Allocated to expense over the number of years until expiration. C. The book value of a share of the company's shares times the number of options. D. Recorded as compensation expense on the date of grant.

A

The price of a corporate bond is the present value of its face amount at the market rate of interest: a. Plus the present value of all future interest payments at the market rate of interest. b. Plus the present value of all future interest payments at the stated rate of interest. c. Reduced by the present value of all future interest payments at the market rate of interest. d. Reduced by the present value of all future interest payments at the stated rate of interest.

A

The tenant of an office building is called __________. A. Lessee B. Lessor C. Either of A. or B. D. None of A. or B.

A

Treasury Stock is a ___ account associated with Shareholders' Equity account. A. Contra B. Adjunct C. Either a. or b. D. None of a. or b.

A

What is the effect of the declaration and subsequent issuance of a stock split (not effected in the form of a stock dividend) on each of the following? Retained earnings Total paid-in capital a. no effect no effect b. no effect increase c. increase decrease d. decrease increase

A

What type of stock options do companies give their employees as part of their compensation? A. Call option B. Put option C. Either a. or b. D. None of a. or b.

A

When calculating basic earnings per share, net income is reduced by dividends on nonconvertible cumulative preferred stock: A. Whether declared or not. B. Only if declared. C. Whether dilutive or not. D. Under no circumstances.

A

When calculating earnings per share, the effect of after-tax interest expense paid on convertible bonds that are dilutive is to: A. Increase net income for diluted earnings per share and not for basic earnings per share. B. Decrease net income for basic earnings per share and not for diluted earnings per share. C. Increase net income for both basic earnings per share and diluted earnings per share. D. Decrease net income for both basic earnings per share and diluted earnings per share.

A

Which of the following describes defined benefit pension plans? A. The investment risk is borne by the employer. B. Retirement benefits depend on the individual's account balance. C. The investment risk is borne by the employee. D. The plans are simple and easy to construct.

A

Which of the following is an example of cash flow hedging? a. An interest rate swap to synthetically convert floating rate debt into fixed rate debt. b. An interest rate swap to synthetically convert fixed rate debt into floating rate debt. c. Both a. and b. d. Neither a. nor b.

A

Which of the following would a lessee not record in connection with a lease? A. Lease revenue. B. Amortization expense. C. Interest expense. D. Right-of-use asset.

A

A bond with a face value of $100,000 is sold at $98,000 on issuance date. The bond is sold at A. A premium B. A discount C. Par D. None of the above

B

A company does NOT make journal entries on which of the following dates? A. Date of Declaration B. Date of Record C. Date of Payment D. Any of the above

B

A firm who enters into a future contract to sell oil at a preset price hopes the oil price to a. Increase b. Decrease c. Stay the same d. None of the above

B

AMC Corporation issued bonds at a discount. The Discount on Bonds Payable account will: a. Increase each year during the term to maturity. b. Decrease each year during the term to maturity. c. Remain the same each year during the term to maturity. d. Increase or decrease each year depending upon the market rate of interest.

B

Chapman Chairs, a family-owned corporation, declared and distributed a property dividend from its overstocked inventory in place of its usual cash dividend. The inventory's book value exceeded its fair value. The excess is: A. Not reported. B. Reported as a loss. C. Reported as other comprehensive income. D. Reported as a direct reduction of shareholders' equity.

B

Defined benefit pension plans are used _____ by companies in recent years than before. A. More B. Less C. The same D. None of the above

B

For a bond, periodic interest expense is calculated as times the carrying value of the bond at the beginning of the period. a. stated interest rate b. market interest rate c. coupon rate d. None of the above

B

If McDonald pays out Apple's stock as dividends, it is called A. Stock dividends B. Property dividends C. Cash dividends D. Liquidating dividends

B

If a temporary difference causes taxable income to be less than book income at origin, this will result in A. Deferred tax asset B. Deferred tax liability C. Either a. or b. D. None of a. or b.

B

If a temporary difference causes taxable income to be less than book income, this will result in a. Deferred tax asset b. Deferred tax liability c. Either a. or b. d. None of a. or b.

B

A company's dividend policy is affected by A. Contractual restrictions of other stakeholders. B. Investors' preferences. C. Expectation of future losses. D. All of the above.

D

An asset for a gain contingency should be accrued if it is that the gain contingency will be realized. a. reasonably possible b. probable c. remote d. none of the above

D

Bonds usually sell at their: A. Maturity value. B. Face value. C. Expected value. D. Present value.

D

Bonds will sell at: a. Their face value if the stated rate is equal to the nominal rate. b. Their face value unless the stated rate is less than the market rate. c. A discount if the stated rate exceeds the market rate. d. A premium if the stated rate exceeds the market rate.

D

Companies shift from defined benefit pension plans to defined contribution plans is because a. Government regulations make defined benefit plans costly to administer. b. Employers are increasingly unwilling to bear the risk of defined benefit plans. c. There has been a shift among many employers from trying to "buy long-term. loyalty" to trying to attract new talent. d. All of the above.

D

Firms buy back their own previously issued shares possibly because they A. Want to improve EPS. B. Need shares to grant to employees as part of employee compensation. C. Want to increase stock price. D. All of the above.

D

In an operating lease in which the asset's economic life and lease term are different: A. The lessee amortizes the leased asset over the term of the lease at a straight-line amount. B. The lessor amortizes the leased asset at an amount that increases each period. C. The lessor amortizes the leased asset over the term of the lease. D. The lessor amortizes the asset over its economic life.

D

Permanent differences between book income and Taxable income could result in A. Deferred tax asset B. Deferred tax liability C. Either a. or b. D. None of a. or b.

D

Permanent differences between book income and Taxable income could result in a. Deferred tax asset b. Deferred tax liability c. Either a. or b. d. None of a. or b.

D

Stock-based compensation includes A. Stock grants. B. Restricted stocks. C. Stock options. D. All of the above.

D

The compensation associated with restricted stock units under a stock award plan is the number of shares represented by the restricted stock units multiplied by the: A. book value of an unrestricted share of the same stock. B. market price of a share of similar fixed income securities. C. book value of a share of similar stock. D. market price of an unrestricted share of the same stock.

D

What is the effect of the declaration and subsequent issuance of a 5% stock dividend on each of the following? Retained earnings Total paid-in capital a. no effect no effect b. no effect increase c. increase decrease d. decrease increase

D

Which of the following account belongs to shareholders' equity? A. Capital stock B. Additional paid-in capital C. Retained earnings D. All of the above

D

Which of the following are derivatives? A. Options B. Futures C. Swaps D. All of the above

D

Which of the following is a criterion of a finance lease? A. Lease transfers ownership of asset to lessee. B. Lease contains a purchase option reasonably certain to be exercised. C. Lease term is major portion of the asset's economic life. D. All of the above

D

Which of the following is an example of an item in book income but not taxable income? a. Interest from state and municipal bonds b. Political contributions and lobbying costs c. Expenses resulting from violation of the law d. All of the above

D

Which of the following is an example of diluted securities? A. Convertible bonds B. Convertible preferred stock C. Stock warrants / Stock options D. All of the above

D

Which of the following is not true with regard to pension plans? A. Pension expense is reported for a defined benefit pension plan. B. A pension fund (plan assets) is established by the employer for a defined benefit pension plan. C. Pension plans are arrangements designed to provide income to individuals during their retirement years. D. A defined contribution pension plan creates a liability for the employer.

D

Which of the following statement is correct regarding the accounting treatment of derivatives? a. Firms can choose to use speculative treatment or hedge treatment at their discretion b. Firms can only use speculative treatment c. Firms can only use hedge treatment d. Firms can use hedge treatment only if they show documentation to prove that the derivative qualifies for hedge treatment

D

Which of the following would a lessor not record in connection with a lease? A. Lease revenue. B. Lease receivable. C. Interest revenue. D. Right-of-use asset.

D

Which of the followings are examples of defined contribution plans? a. 401(k) b. 403(b) c. 457(b) d. All of the above

D

Which of the followings are examples of derivatives? a. Call option b. Put option c. Futures contract d. All of the above

D

Which of the followings are examples of hedging? a. Fair Value Hedge b. Cash Flow Hedge c. Foreign Exchange Hedge d. All of the above

D

A 401(k) plan: A. creates a liability for the employee. B. creates a liability for the employer. C. is a type of defined contribution pension plan. D. is a type of defined benefit pension plan.

C

A bond with a face value of $100,000 is sold at 100,000 on issuance date. The bond is sold at A. A premium B. A discount C. Par D. None of the above

C

Defined benefit pension formula bases retirement pay on the employees' ______. a. Year of service b. Annual compensation c. Both a. and b. d. None of a. or b.

C

For a bond issue that sells for more than the bond face amount, the effective interest rate is: a. More than the rate stated on the face of the bond. b. The Wall Street Journal prime rate. c. Less than the rate stated on the face of the bond. d. The rate printed on the face of the bond.

C

GAAP regarding accounting for income taxes requires which of the following procedures? A. Computation of deferred income tax expense based on temporary and permanent differences. B. Computation of income tax expense based on taxable income. C. Computation of deferred tax assets and liabilities based on temporary differences. D. Computation of deferred income tax expense based on permanent differences.

C

In a ten-year finance lease, the portion of the annual lease payment in the lease's third year that represents interest is: A. The same as in the fourth year. B. The same as in the first year. C. Less than in the second year. D. More than in the second year.

C

In an operating lease in which the asset's economic life and lease term are different: A. The lessee amortizes the leased asset over the term of the lease at a straight-line amount. B. The lessor amortizes the leased asset at an amount that increases each period. C. The lessee amortizes the leased asset over the term of the lease. D. The lessee amortizes the asset over its economic life.

C

Temporary differences between book income and Taxable income could result in a. Deferred tax asset b. Deferred tax liability c. Either a. or b. d. None of a. or b.

C

The interest rate that is printed on the bond certificate is referred to as any of the following except: A. Stated rate. B. Coupon rate. C. Effective rate. D. Nominal rate.

C

When a bond issue sells for less than its face value, the market rate of interest is: a. Dependent on the stated rate of interest. b. Equal to the stated rate of interest. c. Higher than the stated rate of interest. d. Less than the stated rate of interest.

C

When calculating diluted EPS, which of the following, if dilutive, would cause the weighted average number of shares to increase? Dividends on preferred stock Stock options a. Yes No b. Yes Yes c. No Yes d. No No

C

Which of the following is an example of loss contingency? a. Litigation claims against the company b. Product warranty c. Both a. and b. d. Neither a. nor b.

C

Which of the following leases would be classified as a finance lease by the lessee? A. The lease term is 5 years and the economic life of the leased asset is 8 years. B. Ownership of the leased asset reverts to the lessor at the end of the lease term. C. The agreement permits the lessee to buy the leased asset for one dollar at the end of the lease term. D. The fair value of the leased asset is $20 million and the present value of the lease payments is $13 million.

C