IA 2. T/F
Amortization of a premium increases bond interest expense, while amortization of a discount decreases bond interest expense.
FALSE
Amortization of the discount on a zero-interest bearing note decreases the balance in notes payable.
FALSE
An employer does not have to report a liability on its balance sheet in a defined-benefit plan.
FALSE
Both a guaranteed and an unguaranteed residual value affect the lessee's computation of amounts capitalized as a leased asset.
FALSE
Companies recognize the accumulated benefit obligation in their accounts and in their financial statements.
FALSE
Companies report Accumulated Other Comprehensive Income (PSC) as a liability on the balance sheet.
FALSE
When bonds are issued at a premium, the bonds payable account is credited for the face amount.
FALSE
Companies must disclose a reconciliation of how the projected benefit obligation and the fair value of plan assets changed during the year either in their financial statements or in the notes.
TRUE
An onerous contract is one in which the unavoidable costs of satisfying the obligations outweigh the economic benefits to be received.
TRUE
At any point during the term of the bond, the balance in the bonds payable account should be the carrying value of the bond.
TRUE
Bond issue costs are capitalized as a deferred charge and amortized to expense over the life of the bond issue.
TRUE
Bond issues that mature in installments are called serial bonds.
TRUE
Companies compute the vested benefit obligation using only vested benefits, at current salary levels.
TRUE
Companies report the amount of social security taxes withheld from employees as well as the companies' matching portion as current liabilities until they are remitted.
TRUE
Companies should recognize the expense and related liability for compensated absences in the year earned by employees.
TRUE
Companies usually make bond interest payments semiannually, although the interest rate is generally expressed as an annual rate.
TRUE
Contingent assets are not reported in the statement of financial position.
TRUE
Contingent liabilities are not reported in the financial statements but may be disclosed in the notes to the financial statements if the likelihood of an unfavorable outcome is possible.
TRUE
Current liabilities are usually recorded and reported in financial statements at their full maturity value.
TRUE
Direct-financing leases are in substance the financing of an asset purchase by the lessee.
TRUE
Discount on Notes Payable is a contra account to Notes Payable on the balance sheet
TRUE
Employers are at risk with defined-benefit plans because they must contribute enough to meet the cost of benefits that the plan defines.
TRUE
Executory costs should be excluded by the lessee in computing the present value of the minimum lease payments.
TRUE
For purposes of recognizing a provision,"probable" is defined as more likely than not
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
IFRS uses the term "contigent" for assets and liabilities not recognized in the financial statement.
TRUE
Leasing equipment reduces the risk of obsolescence to the lessee, and passes the risk of residual value to the lessor.
TRUE
Lessors classify and account for all leases that do not qualify as direct-financing or sales-type leases as operating leases.
TRUE
Magazine subscriptions and airline ticket sales both result in unearned revenues
TRUE
Many companies do not segregate the sales tax collected and the amount of the sale at the time of the sale.
TRUE
Off-balance-sheet financing is an attempt to borrow monies in such a way to minimize the reporting of debt on the balance sheet.
TRUE
Prior service cost is amortized into income over the expected service lives of employees under both U.S. GAAP and iGAAP.
TRUE
Qualified pension plans permit deductibility of the employer's contributions to the pension fund.
TRUE
The Accumulated Other Comprehensive Income (G/L) account is amortized only if it exceeds 10 percent of the larger of the beginning balances of the projected benefit obligation or the market-related plan assets value.
TRUE
The IASB requires lessees and lessors to disclose certain information about leases in their financial statements or in the notes.
TRUE
The IASB's position is that fair value measurement for financial liabilities is more relevant and understandable than amortized cost.
TRUE
The Pension Asset / Liability account balance equals the difference between the projected benefit obligation and the fair value of pension plan assets.
TRUE
The cause for litigation must have occurred on or before the date of the financial statements to report a liability in the financial statements.
TRUE
The debt to assets ratio will go up if an equal amount of assets and liabilities are added to the balance sheet.
TRUE
The debt to total assets ratio will go up if an equal amount of assets and liabilities are added to the balance sheet.
TRUE
The difference between the expected return and the actual return is referred to as the unexpected gain or loss.
TRUE
The fair value of an asset retirement obligation is recorded as both an increase to the related asset and a liability.
TRUE
The implicit interest rate is the rate that equates the cash received with the amounts received in the future.
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
The process of interest-rate approximation is called imputation, and the resulting interest rate is called an imputed interest rate.
TRUE
The replacement of an existing bond issue with a new one is called refunding.
TRUE
The stated rate is the same as the coupon rate.
TRUE
A pension plan is contributory when the employer makes payments to a funding agency.
FALSE
A short-term obligation can be excluded from current liabilities if the company intends to refinance it on a long-term basis.
FALSE
A zero-interest-bearing note payable that is issued at a discount will not result in any interest expense being recognized.
FALSE
Accumulated rights exist when an employer has an obligation to make payment to an employee even after terminating his employment.
FALSE
All long-term debt maturing within the next year must be classified as a current liability on the balance sheet.
FALSE
A bond may only be issued on an interest payment date.
FALSE
A capitalized leased asset is always depreciated over the term of the lease by the lessee.
FALSE
A company can exclude a short-term obligation from current liablities if it intends to refinance the obligation and has an unconditional right to defer settlement of the obligation for at least 12 months following the due date.
FALSE
A company must accrue a liability for sick pay that accumulates but does not vest.
FALSE
A lease that contains a purchase option must be capitalized by the lessee.
FALSE
A lessee records interest expense in both a finance lease and an operating lease.
FALSE
A mortgage bond is referred to as a debenture bond.
FALSE
Companies should accrue an estimated loss from a loss contingency if information available prior to the issuance of financial statements indicates that it is probable that a liability has been incurred.
FALSE
Companies should recognize the entire increase in projected benefit obligation due to a plan initiation or amendment as pension expense in the year of amendment.
FALSE
Debt issuance costs are recorded as an asset and amortized to expense over the life of the bond.
FALSE
Dividends in arrears on cumulative preferred stock should be recorded as a current liability.
FALSE
IFRS allows for reduced disclosure of contingent liabilities if the disclosure could increase the company`s chance of losing a lawsuit.
FALSE
IFRS recognition criteria for environment liabilities are more stringent than that of US GAAP.
FALSE
IFRS requires that lessees use the incremental rate to record a lease, unless it is impractical to determine it.
FALSE
If a company plans to refinance long-term debt or retire it from a bond retirement fund, it should report the debt as current.
FALSE
If a company plans to retire long-term debt from a bond retirement fund, it should report the debt as current.
FALSE
If a long-term note payable has a stated interest rate, that rate should be considered to be the effective rate.
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
If the market rate is greater than the coupon rate, bonds will be sold at a premium
FALSE
In a troubled debt restructuring, the loss recognized by the creditor will equal the gain recognized by the debtor.
FALSE
In accounting for the intial direct costs for a sales-type lease, the lessor adds initial direct costs to the net investment in the lease and amortizes them over the life of the lease as a yield adjustment
FALSE
Lessors classify and account for all leases that don't qualify as sales-type leases as operating leases.
FALSE
Other Comprehensive Income (PSC) is reported as part of net income.
FALSE
Paying a current liability with cash will always reduce the current ratio.
FALSE
Prepaid insurance should be included in the numerator when computing the acid-test (quick) ratio.
FALSE
Prior service cost is recognized on the balance sheet under both U.S. GAAP and iGAAP.
FALSE
Provisions are only recorded if it is likely that the company will have to settle an obligation at some point in the future
FALSE
Service cost is the expense caused by the increase in the accumulated benefit obligation because of employees' service during the current year.
FALSE
Short-term debt obligations are classified as current liabilities unless an agreement to refinance is completed before the financial statements are issued.
FALSE
The FASB requires only the years-of-service method for amortization of prior service cost.
FALSE
The IASB agrees with the capitalization approach and requires companies to capitalize all long-term leases.
FALSE
The accounting for defined-benefit pension plans is the same under U.S. GAAP and iGAAP.
FALSE
The accumulated benefit obligation bases the deferred compensation amount on both vested and nonvested service using future salary levels.
FALSE
The cash paid for interest will always be greater than interest expense when using effective-interest amortization for a bond.
FALSE
The distinction between a direct-financing lease and a sales-type lease is the presence or absence of a transfer of title.
FALSE
The expected profit from a sales type warranty that covers several years should all be recognized in the period the warranty is sold.
FALSE
The gross profit amount in a sales-type lease is greater when a guaranteed residual value exists.
FALSE
The interest rate written in the terms of the bond indenture is called the effective yield or market rate.
FALSE
The journal entry to record amortization of bond discount includes a debit to the bonds payable account.
FALSE
The lessor will recover a greater net investment if the residual value is guaranteed instead of unguaranteed.
FALSE
The times interest earned ratio is computed by dividing income before interest expense by interest expense.
FALSE
The unexpected gains and losses from changes in the projected benefit obligation are called asset gains and losses.
FALSE
Under U.S. GAAP companies may either recognize actuarial gains and losses in income immediately or amortize them over the expected service lives of employees.
FALSE
Under the expense warranty approach, companies charge warranty costs only to the period in which they comply with the warranty.
FALSE
Under the operating method, the lessor records each rental receipt as part interest revenue and part rental revenue.
FALSE
A company discloses gain contingencies in the notes only when a high probability exists for realizing them.
TRUE
A Provision differs from other liabilities in that there is greater uncertainty about the timing and amount of settlement.
TRUE
A benefit of leasing to the lessor is the return of the leased property at the end of the lease term.
TRUE
A common method of measuring the current liability portion in ordinary annuity leases is the change-in-the-present-value method.
TRUE
The use of an unrealistically low discount rate could lead to a lessee recording a leased asset at an amount exceeding the fair value of the equipment, which is generally prohibited in IFRS.
TRUE
Together the FASB and IASB hope to craft a new lease accounting standard that will eliminate the notion of the operating lease.
TRUE
Under IFRS, subsidiaries in which the parent company holds a less tha
TRUE
Under iGAAP companies may recognize actuarial gains and losses in income immediately.
TRUE
When a company amends its defined benefit plan, and recognizes prior service, the projected benefit obligation is increased to recognize this additional liability.
TRUE
When a zero-interest bearing note is issued, the note payable account will be credited for the present value of the maturity value.
TRUE
When bonds are issued at a discount, the bonds payable account is credited for the proceeds from the issue.
TRUE
When the lessee agrees to make up any deficiency below a stated amount that the lessor realizes in residual value, that stated amount is the guaranteed residual value.
TRUE
