Exam 3

Treasury stock sold for less than its cost decreases net income. A. True B. False

B

Which of the following best describes a possible result of treasury stock transactions by a corporation? A. May increase but not decrease retained earnings. B.May decrease but not increase retained earnings. C. May increase net income if the cost method is used. D. May decrease but not increase net income.

B

Which of the following dividends do not reduce total stockholders' equity? A. All of these answer choices reduce total stockholders' equity. B. Stock dividends. C. Liquidating dividends. D. Cash dividends.

B

Which of the following features of preferred stock makes the security more like debt than an equity instrument? A. Noncumulative B. Redeemable C. Participating D. Voting

B

Which of the following is included in employer payroll taxes? A. State unemployment taxes. B. All of these answers are correct. C. F.I.C.A. taxes. D. Federal unemployment taxes.

B

Which of the following is not an example of a current liability? A. Unearned Service Revenue. B. Preferred dividends in arrears. C. Salaries Payable. D. Dividends Payable.

B

Which of the following statements is false? A. When rights are vested, an employer has an obligation to make payment to an employee. B. Profit-Sharing Bonus Payable is usually reported as a long-term liability. C. The liability for compensated absences should be recognized in the year earned. D. Unemployment taxes are paid by the employer.

B

Which one of the following statements relating to mortgage notes payable is not correct? A. Mortgage notes payable are payable in full at maturity or in installments. B. Mortgage notes payable are always reported as a long-term liability. C. Mortgage notes payable are the most common form of long-term notes payable. D. A mortgage note payable is a promissory note secured by a document that pledges title to property as security for the loan.

B

A loss related to general or unspecified business risks is A. usually accrued. B. always accrued. C. not accrued. D. sometimes accrued.

C

A bond that matures in installments is called a: A. serial bond. B. callable bond. C. bearer bond. D. term bond.

A

All of the following statements are true regarding IFRS treatment of reporting and recognition of liabilities except: A. IFRS allows the recognition of liabilities for future losses. B. For contingencies, IFRS requires insurance recoveries be "virtually certain" before recognition of an asset is permitted. C. IFRS requires that companies present current and noncurrent liabilities on the face of the balance sheet, with current liabilities generally presented in order of liquidity. D. The recognition criteria for asset retirement obligations is less stringent under IFRS than it is under U.S. GAAP.

A

Preferred stock has no voting rights. A. True B. False

A

A bond for which the issuer has the right to call and retire the bonds prior to maturity is a A. convertible bond. B. debenture bond. C. callable bond. D. retirable bond.

C

Treasury stock is classified on the balance sheet as an asset. A. True B. False

B

Cody Company has a loss contingency to accrue. The company's legal council's opinion is that that the amount can only be reasonably estimated within a range of outcomes. They estimate that the amount of the loss will be somewhere between $300,000 and $600,000. No single amount within the range is a better estimate than any other amount. The amount of loss accrual should be A. $300,000. B. $600,000. C. $450,000. D. zero.

A

Eckert Company issues $10,000,000, 6%, 5-year bonds dated July 1, 2014 on July 1, 2014. The bonds pay interest semiannually on December 31 and June 30. The bonds are issued to yield 5%. What are the proceeds from the bond issue? 2.5% 3.0% 5.0% 6.0% Present value of a single sum for 5 periods 0.88385 0.86261 0.78353 0.74726 Present value of a single sum for 10 periods 0.78120 0.74409 0.61391 0.55839 Present value of an annuity for 5 periods 4.64583 4.57971 4.32948 4.21236 Present value of an annuity for 10 periods 8.75206 8.53020 7.72173 7.36009 A. $10,437,618 B. $10,432,988 C. $10,434,616 D. $10,000,000

A

On January 1, Gasperson Inc. issued $100,000,000, 7% bonds at 102. The journal entry to record the issuance of the bonds will include A. a credit to Premium on Bonds Payable for $2,000,000. B. a debit to Cash for $100,000,000. C. a credit to Bonds Payable for $102,000,000. D. a credit to Interest Expense for $2,000,000.

A

On October 31, 2014, Lexington Corp. declared and issued a 12% common stock dividend. Prior to this dividend, Lexington had 302,000 shares of $.001 par value common stock issued and outstanding. The fair value of Lexington's common stock was $16.75 per share on October 31, 2014. As a result of this stock dividend, the company's total stockholders' equity A. did not change. B. decreased by $5,058,500. C. increased by $302,000. D. decreased by $5,058,198.

A

Presented below is information related to Kaenzig Corporation: Common Stock , $1 par $2,100,000 Paid-in Capital in Excess of Par - Common Stock 550,000 Preferred 8 ½% Stock, $50 par 1,700,000 Paid-in Capital in Excess of Par—Preferred Stock 950,000 Retained Earnings 2,350,000 Treasury Common Stock (at cost) 250,000 The total stockholders' equity of Kaenzig Corporation is A. $7,400,000. B. $7,900,000. C. $2,300,000. D. $5,300,000.

A

Redeemable preferred stock should be classified as a liability on the balance sheet. A. True B. False

A

Short-term obligations expected to be refinanced are not classified as current liabilities because A. their satisfaction will not require the use of assets classified as current as of the balance sheet date. B. they will be paid by the balance sheet date. C. none of these answers are correct. D. the obligations will be satisfied before the financial statements are issued.

A

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 A. the stated rate of interest exceeded the market rate. B. no necessary relationship exists between the two rates. C. the market rate of interest exceeded the stated rate. D. the market and stated rates coincided.

A

The current ratio measures A. Liquidity. B. All of these options are correct. C. Profitability. D. Solvency.

A

The entry to accrue a contingent liability A. includes a debit to a loss account. B. reduces equity but not income. C. is made if it is more likely than not that the liability has been incurred. D. is recorded even though not reasonably estimated.

A

The rate of return on common stock equity is computed by dividing: A. net income less preferred dividends by average common stockholders' equity. B. net income less preferred dividends by ending common stockholders' equity. C. net income by average common stockholders' equity. D. net income by ending common stockholders' equity.

A

Ultra-energy Company offers a cash rebate of $2 on each $9 package of protein powder sold during 2014. Historically, 20% of customers mail in the rebate form. During 2014, 3,000,000 packages are sold, and 250,000 $2 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the company's 2014 financial statements? A. $1,200,000; $700,000 B. $500,000; $700,000 C. $500,000; $1,200,000 D. $1,200,000; $500,000

A

When a note is exchanged for property in a bargained transaction, the stated interest rate is presumed to be fair unless: A. all of these answer choices are correct. B. the stated face amount of the note is materially different from the current cash sales price for similar items. C. no interest rate is stated. D. the stated interest rate is unreasonable.

A

Which of the following is not acceptable treatment for the presentation of current liabilities? A. Offsetting current liabilities against assets that are to be applied to their liquidation. B. Listing current liabilities according to amount. C. Showing currently maturing long-term debt as part of current liabilities. D. Listing current liabilities in order of maturity.

A

Which of the following is not one of the requirements for accruing the cost of compensated absences? A. Payment of the compensation is possible. B. The employee's services must have already been rendered. C. The amount can be reasonably estimated. D. The obligation relates to rights that vest or accumulate.

A

Which of the following statements related to dividends is incorrect? A. Dividends must be paid in the period declared. B. Distributions to owners must be in compliance with the state laws. C. Dividends must be declared by the Board of Directors. D. Dividends must comply with stock contracts as to preferences and participation.

A

Which of the following type of stock will not increase Additional Paid-in Capital when issued? A. No-par value stock. B. Preferred stock. C. Stated value stock. D. Par value stock.

A

Which of these is not included in an employer's payroll tax expense? A. Federal income taxes B. F.I.C.A. (social security) taxes C. Federal unemployment taxes D. State unemployment taxes

A

A debt instrument with no ready market is exchanged for property whose fair market value is currently indeterminable. When such a transaction takes place A. the directors of both entities involved in the transaction should negotiate a value to be assigned to the property. B. the present value of the debt instrument must be approximated using an imputed interest rate. 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. it should not be recorded on the books of either party until the fair market value of the property becomes evident.

B

A large anticipated insurance recovery is reported as A. an account receivable with additional disclosure explaining the nature of the contingency. B. a disclosure only. C. deferred revenue. D. an accrued amount.

B

A liability for compensated absences is A. disclosed in a note only. B. accrued only if specific conditions are met. C. never accrued but may be disclosed if desired. D. accrued under all conditions.

B

All of the following are typically classified as current liabilities except: A. unearned revenues. B. stock dividends distributable. C. current maturities of long-term debt. D. returnable deposits.

B

All of the following statements are true regarding preferred stock except: A. the dividend preference for preferred stock is expressed as a percentage of the par value. B. a preference as to dividends assures the payment of dividends. C. companies usually issue preferred stock with a par value. D. a company often issues preferred stock instead of debt, because of a high debt-to-equity ratio.

B

At the date of declaration of a large common stock dividend, the entry should include A. a credit to Cash. B. a debit to Retained Earnings. C. a credit to Paid-in Capital in Excess of Par. D. a credit to Common Stock Dividend Payable.

B

Current liabilities are defined as obligations whose liquidation is reasonably expected to A. be paid within a year. B. require use of current assets or creation of other current liabilities. C. require use of current assets. D. require the distribution of cash.

B

Current liabilities are usually recorded in the accounting records and reported in financial statements at their: A. face value. B. maturity value. C. present value. D. carrying value.

B

Duszynski Company issues 20,000 shares of its $.50 par value common stock having a market value of $25 per share and 6,000 shares of its $25 par value preferred stock having a market value of $50 per share for a lump sum of $750,000. The proceeds allocated to the common stock is A. $705,000 B. $468,750 C. $450,000 D. $500,000

B

Employer payroll taxes include all of the following except A. federal unemployment taxes. B. state income taxes. C. state unemployment taxes. D. FICA taxes.

B

Fancy Fish Company offers a cash rebate of $.25 on each $12 package of fish food sold during 2014. Historically, 10% of customers mail in the rebate form. During 2014, 5,000,000 packages are sold, and 150,000 $.25 rebates are mailed to customers. What is the rebate expense and liability, respectively, reported in the company's 2014 financial statements? A. $125,000; $37,500 B. $125,000; $87,500 C. $125,000; $125,000 D. $37,500; $87,500

B

In accounting for short-term debt expected to be refinanced to long-term debt: A. GAAP uses the authorization date to determine classification of short-term debt to be refinanced. B. IFRS uses the financial statement date to determine classification of short-term debt to be refinanced. C. IFRS uses the authorization date to determine classification of short-term debt to be refinanced. D. GAAP uses the date of issue, but only for secured debt, to determine classification of short-term debt to be refinanced.

B

Jackson Corporation issued a 100% stock dividend of its common stock which had a par value of $.01, and a market value of $123 before the dividend and $62 after the dividend. At what amount should retained earnings be capitalized for the additional shares issued? A. Market value on the declaration date B. Par value C. Market value on the payment date D. There should be no capitalization of retained earnings.

B

McCaffrey Corporation owned 15,000 shares of Harper Corporation's $5 par value common stock. These shares were purchased in 2010 for $326,000. On May 4, 2014, McCaffrey declared a property dividend of one share of Harper for every twenty shares of McCaffrey stock held by a stockholder. On that date, when the market price of Harper was $34 per share, there were 280,000 shares of McCaffrey outstanding. What net reduction in retained earnings would result from this property dividend? A. $176,000 B. $304,267 C. $476,000 D.$150,000

B

Presented below is information related to Schoenthaler Corporation: Common Stock , $5 par $1,100,000 Paid-in Capital in Excess of Par - Common Stock 400,000 Preferred 5 ½% Stock, $100 par 1,500,000 Paid-in Capital in Excess of Par—Preferred Stock 500,000 Retained Earnings 2,000,000 Paid-in Capital in Excess of Cost - Treasury Stock 150,000 The total stockholders' equity of Schoenthaler Corporation is A. $5,350,000. B. $5,650,000. C. $3,650,000. D. $5,500,000.

B

Stock splits increase total stockholders' equity. A. True B. False

B

The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the A. registered bond. B. bond indenture. C. bond debenture. D. bond coupon.

B

A company can exclude a short-term obligation from current liabilities if it: A. pays off the obligation after the balance sheet date and subsequently replaces it with long-term debt before the balance sheet is issued. B. demonstrates an ability to consummate the refinancing. C. intends to refinance the obligation on a long-term basis and demonstrates an ability to consummate the refinancing. D. intends to refinance the obligation on a long-term basis.

C

Accrued liabilities are disclosed in the financial statements by A. showing the amount among the liabilities but not extending it to the liability total. B. an appropriation of retained earnings. C. appropriately classifying them as regular liabilities in the balance sheet. D. a footnote to the statements.

C

Additional paid-in capital is not affected by the issuance of: A. preferred stock. B. par value stock. C. no-par stock. D. stated value stock.

C

All of the following statements related to bonds are correct regarding bonds except: A. Bonds arise from a contract known as a bond indenture. B. Bonds represent a promise to pay a sum of money plus periodic interest. C. Bonds usually pay interest annually. D. Bonds typically have a $1,000 face value.

C

Black Water Inc. is being sued by former employees as a result of negligence on the company's part. Black Water's lawyers state that it is probable that the company will lose the suit and be found liable for a judgment costing the company anywhere from $100,000,000 to $200,000,000. However, the lawyer states that the most probable cost is $125,000,000. As a result of the above facts, Black Water should accrue A. no loss contingency but disclose a contingency of $100,000,000 to $200,000,000. B. a loss contingency of $125,000,000 but not disclose any additional contingency. C. a loss contingency of $125,000,000 and disclose an additional contingency of up to $75,000,000. D. a loss contingency of $100,000,000 and disclose an additional contingency of up to $100,000,000.

C

Blowing Rock Inc. has 5,000 shares of 5%, $100 par value, cumulative preferred stock and 30,000 shares of $1 par value common stock outstanding at December 31, 2014. There were no dividends declared in 2012. The board of directors declares and pays a $45,000 dividend in 2013 and in 2014. What is the amount of dividends received by the common stockholders in 2014? A. $45,000 B. $25,000 C. $15,000 D. $0

C

Bonds which do not pay interest unless the issuing company is profitable are called A. term bonds. B. debenture bonds. C. income bonds. D. secured bonds.

C

On June 30, 2014, Prouty Co. had outstanding 9%, $5,000,000 face amount, 10-year bonds that pay interest semi-annually on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2014 were $200,000 and $50,000, respectively. On June 30, 2014, Prouty acquired all of these bonds at 101 and retired them. What amount of gain or loss would Prouty record on this early extinguishment of debt? A. $250,000 loss. B. $505,000 gain. C. $300,000 loss. D. $200,000 gain.

C

Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as A. an increase in current liabilities for the current portion and long-term liabilities for the long-term portion. B. an increase in stockholders' equity. C. a footnote. D. an increase in current liabilities.

C

Durango Inc. had net income for 2014 of $2,120,000 and earnings per share on common stock of $5. Included in the net income was $300,000 of bond interest expense related to its long-term debt. The income tax rate for 2012 was 30%. Dividends on preferred stock were $400,000. The payout ratio on common stock was 25%. What were the dividends on common stock in 2014? A. $482,500. B. $530,000. C. $430,000. D. $645,000.

C

Federal income taxes withheld by the employer on behalf of the employee are recorded as A. expenses. B. receivables. C. current liabilities. D. unearned revenues.

C

If a bond sold at 97, the market rate was: A. equal to the coupon rate. B. equal to the stated rate. C. greater than the stated rate. D. less than the stated rate.

C

In 2013, General Dynamics Corporation began selling a new line of products that carries a two-year warranty against defects. Based upon past experience with other products, the estimated warranty costs related to dollar sales are as follows: First year of warranty 2% Second year of warranty 5% Sales and actual warranty expenditures for 2013 and 2014 are presented below: 2013 2014 Sales $600,000 $800,000 Actual warranty expenditures 20,000 40,000 What is the estimated warranty liability at the end of 2014? A. $98,000. B. $58,000. C. $38,000. D. $16,000.

C

In every corporation the one class of stock that represents the basic ownership interest is called A. preferred stock. B. cumulative stock. C. common stock. D. owners' stock.

C

Liabilities are A. obligations to transfer ownership shares to other entities in the future. B. deferred credits that are recognized and measured in conformity with generally accepted accounting principles. C. obligations arising from past transactions and payable in assets or services in the future. D. accounts having credit balances after closing entries are made.

C

On January 1, 2014, Kimbrough Inc. issued $5,000,000, 9% bonds for $4,695,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Kimbrough uses the effective-interest method of amortizing bond discount. At December 31, 2014, Kimbrough should report unamortized bond discount of A. $258,050. B. $255,000. C. $285,500. D. $274,500.

C

On September 14, 2014, Gayot Company reacquired 12,000 shares of its $1 par value common stock for $40 per share. Gayot uses the cost method to account for treasury stock. The journal entry to record the reacquisition of the stock should debit A. Common Stock for $24,000 and Paid-in Capital in Excess of Par for $456,000. B. Treasury Stock for $24,000. C. Treasury Stock for $480,000. D. Common Stock for $480,000.

C

Presented below is information related to Polaris Corporation: Common Stock, $1 par $10,350,000 Paid-in Capital in Excess of Par—Common Stock 6,520,000 Paid-in Capital in Excess of Cost—Treasury Stock 400,000 Retained Earnings 9,543,000 Treasury Common Stock (at cost) 695,000 The total stockholders' equity of Polaris Corporation is A. $27,508,000. B. $27,108,000. C. $26,118,000. D. $25,318,000.

C

The acid-test ratio relates total current liabilities to cash A. and receivables. B. receivables, and inventory. C. short-term investments, and receivables. D. and short-term investments.

C

The most common type of preferred stock is: A. convertible preferred stock. B. participating preferred stock. C. cumulative preferred stock. D. callable preferred stock.

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 accumulated in a deferred charge account and 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 residual interest in a corporation belongs to A. the Board of Directors. B. Management. C. the common stockholders. D. the preferred stockholders.

C

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 A. stated rate. B. coupon rate. C. market rate. D. nominal rate.

C

Under the effective interest method, interest expense: A. always decreases each period the bonds are outstanding. B. always increases each period the bonds are outstanding. C. is the same total amount as straight-line interest expense over the term of the bonds. D. is the same annual amount as straight-line interest expense.

C

When a bond sells at a premium, interest expense will be: A. greater than the bond interest payment. B. equal to the bond interest payment. C. less than the bond interest payment. D. none of these answer choices are correct.

C

Which of the following country systems of finance have relied more heavily on debt financing, interlocking stock ownership, banker/directors, and worker/shareholder rights? A. Germany and Britain. B. USA and Britain. C. Japan and Germany. D. Britain and Japan.

C

Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles? A. Amount of loss is reasonably estimable and event occurs infrequently. B. Event is unusual in nature and event occurs infrequently. C. Amount of loss is reasonably estimable and occurrence of event is probable. D. Event is unusual in nature and occurrence of event is probable.

C

Which one of the following is not a right of common stockholders? A. To share proportionately in any new issues of stock of the same class. B. To share proportionately in profits and losses. C. To share proportionately in all management decisions. D. To share proportionately in corporate assets upon liquidation.

C

A bond issued in the name of the owner is a: A. bearer bond. B. convertible bond. C. income bond. D. registered bond.

D

Before declaring a cash dividend, management must consider the A. current market price of the stock. B. legal capital of the stock. C. effect on paid-in capital. D. availability of funds.

D

Cash dividends are paid on the basis of the number of shares A. issued. B. outstanding less the number of treasury shares. C. authorized. D. outstanding.

D

Characteristics of the corporate form of organization include all of the following except: A. formality of profit distribution. B. capital stock or share system. C. variety of ownership interests. D. unlimited liability of stockholders.

D

Ferrone Company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Ferrone uses effective-interest amortization. What amount of interest expense will Ferrone record for the June 30 payment? A. $400,000 B. $784,164 C. $390,000 D. $392,082

D

Gain contingencies are recorded when: A. it is probable that a benefit will be received. B. the amount of the gain can be reasonably estimated. C. both A and B. D. none of these answers is correct.

D

Gain contingencies include all of the following except A. possible receipts of donations and bonuses. B. pending court cases where the probable outcome is favorable. C. tax loss carryforwards. D. All of the options are gain contingencies.

D

Gulfport Corporation was organized in January 2014 with authorized capital of $.0001 par value common stock. On February 1, 2012, shares were issued at par for cash. On March 1, 2014, the corporation's attorney accepted 5,000 shares of common stock in settlement for legal services with a fair value of $25,250. Additional paid-in capital would increase on 2/1/2014 3/1/2014 A. No No B. Yes No C. Yes Yes D. No Yes

D

Hise Inc., has 4,000 shares of 9%, $100 par value, cumulative preferred stock and 200,000 shares of $1 par value common stock outstanding at December 31, 2014, and December 31, 2013. The board of directors declared and paid a $25,000 dividend in 2013. In 2014, $74,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2014? A. $ 74,000 B. $11,000 C. $36,000 D. $ 47,000

D

If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will A. be less than what it would have been had the effective-interest method of amortization been used. B. be the same as what it would have been had the effective-interest method of amortization been used. C. be less than the stated (nominal) rate of interest. D. exceed what it would have been had the effective-interest method of amortization been used.

D

Lyric Company issued a 90-day zero-interest-bearing note with a face amount of $3,000. The present value of the note is $2,855. The journal entry to record the issuance of the note will include A. a credit to Notes Payable for $2,855. B. none of these answers are correct. C. a debit to Interest Expense for $145. D. a debit to Cash for $2,855.

D

Note disclosures for long-term debt generally include all of the following except A. restrictions imposed by the creditor. B. assets pledged as security. C. call provisions and conversion privileges. D. names of specific creditors.

D

On December 31, 2013, SoBou Co. has $5,000,000 of short-term notes payable due on February 14, 2014. On January 10, 2014, SoBou arranged a line of credit with Suntrust Bank which allows SoBou to borrow up to $3,500,000 at one percent above the prime rate for three years. On February 3, 2014,SoBou borrowed $3,500,000 from Suntrust and used $500,000 additional cash to liquidate $4,000,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as a current liability on the December 31, 2013 balance sheet which is issued on March 2, 2014 is A. $0. B. $500,000. C. $1,000,000. D. $1,500,000.

D

On January 1, 2014, Trinity Company loaned $901,560 to Litton Industries in exchange for a 3 year, zero-interest-bearing note with a face amount, $1,200,000. The prevailing rate of interest for a loan of this type is 10%. The adjusting journal entry made by Litton at December 31, 2014 with regard to the note will include A. a debit to Interest Expense for $120,000. B. a credit to Interest Payable for $60,000. C. a debit to Interest Expense for $29,850. D. a credit to Discount on Notes Payable for $90,156.

D

On January 1, 2014, Vancleave Corporation had 110,000 shares of its $.001 par value common stock outstanding. On November 27, when the market price of the stock was $8, the corporation declared a 10% stock dividend to be issued to stockholders of record on December 28, 2014. What was the impact of the 10% stock dividend on the balance of the retained earnings account? A. $77,000 decrease B. No effect C. $11,000 decrease D. $88,000 decrease

D

On June 30, 2014, Baker Co. had outstanding 8%, $6,000,000 face amount, 15-year bonds maturing on June 30, 2024. Interest is payable on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2014 were $210,000 and $60,000, respectively. On June 30, 2014, Baker acquired all of these bonds at 94 and retired them. What net carrying amount should be used in computing gain or loss on this early extinguishment of debt? A. $5,640,000. B. $5,940,000. C. $5,790,000. D. $5,730,000.

D

Pontchartrain Company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2014. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,145. The company uses effective-interest amortization. Interest expense reported on the 2014 income statement will total A. $1,600,000 B. $1,560,000 C. $1,529,115 D. $1,568,498

D

The interest rate written in the terms of the bond indenture is known as the A. market rate. B. yield rate. C. effective rate. D. coupon rate, nominal rate, or stated rate.

D

The numerator in the times interest earned ratio is: A. income before interest. B. net income. C. income before taxes. D. income before interest and taxes.

D

The presentation of current and noncurrent liabilities in the statement of financial position: A. is always shown with current liabilities reported first in an IFRS statement of financial position. B. is shown only on GAAP financial statements. C. includes contingent liabilities under IFRS. D. is shown on both a GAAP and an IFRS statement of financial position.

D

Which of the following factors need not be considered in determining whether a liability should be recorded with respect to pending or threatened litigation? A. The probability of an unfavorable outcome. B. The time period in which the cause of action occurred. C. The ability to make a reasonable estimate of the loss. D. All of the options must be considered.

D

Which of the following is not true about the discount on short-term notes payable? A. The amortization of Discount on Notes Payable increases interest expense. B. The Discount on Notes Payable account is a contra liability and has a debit balance. C. When there is a discount on a note payable, the effective interest rate is higher than the stated interest rate. D. The Discount on Notes Payable account should be reported as an asset on the balance sheet.

D

Which of the following statements is false? A. A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis and demonstrates an ability to complete the refinancing. B. Cash dividends should be recorded as a liability when they are declared by the board of directors. C. Unearned revenues represent advance payments for goods or services from customers. D. Stock dividends declared but not yet distributed are a reported as a liability until the stock is issued.

D