Acctg331 Exam 2

On January 1 of the current year, Barton Co. paid $900,000 to purchase two-year, 8%, $1,000,000 face value bonds that were issued by another publicly-traded corporation. Barton plans to sell the bonds in the first quarter of the following year. The fair value of the bonds at the end of the current year was $1,020,000. At what amount should Barton report the bonds in its balance sheet at the end of the current year?

$1,020,000 Trading and AFS securities (both debt and equity investments) are ALWAYS recorded at the fair value

"CullumberCorporation is a lessee with a finance lease. The asset is recorded at $1140000 and has an economic life of 8 years. The lease term is 5 years. The asset is expected to have a fair value of $420000 at the end of 5 years, and a fair value of $160000 at the end of 8 years. The lease agreement provides for the transfer of title of the asset to the lessee at the end of the lease term. What amount of amortization expense would the lessee record for the first year of the lease?"

$122,500 amort expense = (1140000-160000)/8 because a finance lease assumes that PV of payments is substantially all of the FV at the end of lease

"On December 31, Year 18, Carla Vista Corporation leased a ship from Fort Company for an 8-year period expiring December 30, 2026. Equal annual payments of $570000 are due on December 31 of each year, beginning with December 31, Year 18. The lease is properly classified as a finance lease on Carla Vista s books. The present value at December 31, Year 18 of the eight lease payments over the lease term discounted at 11% is $2933290. Assuming all payments are made on time, the amount that should be reported by Carla Vista Corporation as the total obligation under financial leases on its December 31, Year 19 balance sheet is"

$2,053,252 Interest on Dec 31, Yr19... (2933209-570000) * 11% = 259962 Total obligation on Dec 31, Yr19... 2933290-570000 - (570000-259969) = 2053252

During Year 17, Blossom Company purchased 78000 shares of Holmes Corporation common stock for $1240000 as an equity investment. The fair value of these shares was $1182000 at December 31, Year 17. Blossom sold all of the Holmes stock for $17 per share on December 3, Year 18, incurring $54000 in brokerage commissions. Blossom Company should report a realized gain on the sale of stock in Year 18 of

$32,000 78000 shares * $17 /share = $1,326,000 $1,326,000 - $54,000 - $1,240,000 = $32,000

When are companies required to amortize away the discount on a bond receivable?

Any time the company reports a balance in the discount account.

Which of the following accurately describes the difference between a defined contribution and a defined benefit plan?

Employees enjoy a set retirement benefit from a defined benefit plan.

IFRS distinguishes between sales-type and direct financing leases for lessors.

False

Hirola wants to offer a new client a bargain purchase option (BPO) at the end of their new lease contract. The current market value of the asset is $169,000. At the end of the lease period, Hirola believes that the asset will be worth $19,000. Hirola would like the lease payments to be $34,670 over the 5 years of the lease. What would constitute a BPO on this lease?

None of these options would constitute a BPO on this lease. ** the deal at the end of the lease has to be less than $19,000

Which of the following transactions is NOT typically made for an investment classified as a held-to-maturity security?

The change in market value.

Which of the following facts would force a lessee to record a lease as a financing lease?

The lessee intends to keep the asset at the end of the lease term

Which of the following pieces of information is necessary for a LESSOR to complete its lease amortization schedule?

The value of an unguaranteed residual

Based on our discussions, why are some U.S. companies already reporting under IFRS instead of GAAP?

Their parent company follows IFRS and needs their methods to match.

Which of the following is true about actuarial gains or losses?

They are caused by differences in estimates.

Why are prior service costs amortized away in pension accounting?

To record adjustments due to renegotiations over employees' service term.

All cash dividends received by an investor from the investee decrease the investment s carrying value under the equity method.

True

Koehn Corporation accounts for its investment in the common stock of Sells Company under the equity method. Koehn Corporation should ordinarily record a cash dividend received from Sells as

a reduction of the carrying value of the investment

Major reasons why a company may become involved in leasing to other companies is (are)

all of these answers are correct (includes... interest revenue, high residual values, tax incentives)

"In accounting for investments in debt securities,"

any discount or premium is amortized (think of HTM securities)

Whenever a defined-benefit plan is amended and credit is given to employees for years of service provided before the date of amendment

both the pension expense and the projected benefit obligation are usually greater than before

Which of the following is not one of the lease classification tests?

collectibility

Which of the following is not included in determining the balance of plan assets?

expected return

A lessee reports interest expense in both a finance lease and an operating lease.

false

A pension plan is contributory when the employer makes payments to a funding agency.

false

Both a guaranteed and an unguaranteed residual value affect the lessee's computation of amounts capitalized as a leased asset.

false

If the Accumulated Other Comprehensive Income (G/L) account is less than the corridor, the net gains and losses are subject to amortization.

false

"Debt securities that are accounted for at amortized cost, not fair value, are"

held-to-maturity debt securities

When an investment in a held-to-maturity security is transferred to an available-for-sale debt security, the carrying value assigned to the available-for-sale debt security should be

its fair value at the date of the transfer.

When a company adopts a pension plan, prior service costs should be charged to

other comprehensive income (PSC).

The International Accounting Standards Board has proposed changes to IFRS pension accounting including all of the following except

requiring recognition of actuarial gains and losses over the expected service lives of employees

Equity securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses are

securities where a company has holdings of less than 20%.

Employers are at risk with defined-benefit plans because they must contribute enough to meet the cost of benefits that the plan defines.

true

From the lessee's viewpoint, an unguaranteed residual value is the same as no residual value in terms of computing the minimum lease payments.

true

The interest component of pension expense in the current period is computed by multiplying the settlement rate by the beginning balance of the projected benefit obligation.

true