c. the board of directors of the entity receiving the property a. current liabilities by total assets. d.
d. do nothing special and ignore the fact that the accounting
should estimate a value for the property that will serve as a
basis for the transaction.
d. the directors of both entities involved in the transaction
should negotiate a value to be assigned to the property.
45. When a note payable is issued for property, goods, or
services, the present value of the note is measured by
a. the fair value of the property, goods, or services.
b. the fair value of the note.
c. using an imputed interest rate to discount all future
payments on the note.
d. any of these.
46. When a note payable is exchanged for property, goods,
or services, the stated interest rate is presumed to be fair
unless
a. no interest rate is stated.
b. the stated interest rate is unreasonable.
c. the stated face amount of the note is materially different
from the current cash sales price for similar items or from
current fair value of the note.
d. any of these.
47. If a company chooses the fair value option, a decrease in
the fair value of the liability is recorded by crediting
a. Bonds Payable.
b. Gain on Restructuring of Debt.
c. Unrealized Holding Gain/Loss-Income.
d. None of these.
48. Which of the following is an example of "off-balance-
sheet financing"?
1. Non-consolidated subsidiary.
2. Special purpose entity.
3. Operating leases.
a. 1
b. 2
c. 3
d. All of these are examples of "off-balance-sheet financing."
S49. When a business enterprise enters into what is referred
to as off-balance-sheet financing, the company
a. is attempting to conceal the debt from shareholders by
having no information about the debt included in the balance
sheet.
b. wishes to confine all information related to the debt to the
income statement and the statement of cash flow.
c. can enhance the quality of its financial position and
perhaps permit credit to be obtained more readily and at less
cost.
d. is in violation of generally accepted accounting principles.
S50. Long-term debt that matures within one year and is to
be converted into stock should be reported
a. as a current liability.
b. in a special section between liabilities and stockholders’
equity.
c. as noncurrent.
d. as noncurrent and accompanied with a note explaining the
method to be used in its liquidation.
51. Which of the following must be disclosed relative to
long-term debt maturities and sinking fund requirements?
a. The present value of future payments for sinking fund
requirements and long-term debt maturities during each of
the next five years.
b. The present value of scheduled interest payments on long- a. redeemable preferred stock.
term debt during each of the next five years.
c. The amount of scheduled interest payments on long-term c. municipal bonds.
debt during each of the next five years.
d. The amount of future payments for sinking fund
requirements and long-term debt maturities during each of
the next five years.
52. Note disclosures for long-term debt generally include all b. available-for-sale.
of the following except
a. assets pledged as security.
b. call provisions and conversion privileges.
c. restrictions imposed by the creditor.
d. names of specific creditors.
53. The times interest earned ratio is computed by dividing a. make an adjusting entry to debit Interest Receivable and to c. cost including brokerage and other fees.
a. net income by interest expense.
b. income before taxes by interest expense.
c. income before income taxes and interest expense by
interest expense.
d. net income and interest expense by interest expense.
54. The debt to total assets ratio is computed by dividing
b. long-term liabilities by total assets. period does not coincide with the bond's interest period.
c. total liabilities by total assets.
d. total assets by total liabilities. S26. Debt securities that are accounted for at amortized cost,
not fair value, are
*55. In a troubled debt restructuring in which the debt is a. held-to-maturity debt securities.
continued with modified terms and the carrying amount of b. trading debt securities.
the debt is less than the total future cash flows, c. available-for-sale debt securities.
a. a loss should be recognized by the debtor. d. never-sell debt securities.
b. a gain should be recognized by the debtor.
c. a new effective-interest rate must be computed. S27. Debt securities acquired by a corporation which are
d. no interest expense or revenue should be recognized in the accounted for by recognizing unrealized holding gains or
future. losses and are included as other comprehensive income and
as a separate component of stockholders' equity are
*56. A troubled debt restructuring will generally result in a a. held-to-maturity debt securities.
a. loss by the debtor and a gain by the creditor. b. trading debt securities.
b. loss by both the debtor and the creditor. c. available-for-sale debt securities.
c. gain by both the debtor and the creditor. d. never-sell debt securities.
d. gain by the debtor and a loss by the creditor.
S28. Use of the effective-interest method in amortizing bond
*57.In a troubled debt restructuring in which the debt is premiums and discounts results in
restructured by a transfer of assets with a fair value less than a. a greater amount of interest income over the life of the
the carrying amount of the debt, the debtor would recognize bond issue than would result from use of the straight-line
a. no gain or loss on the restructuring. method.
b. a gain on the restructuring. b. a varying amount being recorded as interest income from
c. a loss on the restructuring. period to period.
d. none of these. c. a variable rate of return on the book value of the
investment.
*58. In a troubled debt restructuring in which the debt is d. a smaller amount of interest income over the life of the
continued with modified terms, a gain should be recognized bond issue than would result from use of the straight-line
at the date of restructure, but no interest expense should be method.
recognized over the remaining life of the debt, whenever the
a. carrying amount of the pre-restructure debt is less than the S29. Equity securities acquired by a corporation which are
total future cash flows. accounted for by recognizing unrealized holding gains or
b. carrying amount of the pre-restructure debt is greater than losses as other comprehensive income and as a separate
the total future cash flows. component of stockholders' equity are
c. present value of the pre-restructure debt is less than the a. available-for-sale securities where a company has holdings
present value of the future cash flows. of less than 20%.
d. present value of the pre-restructure debt is greater than the b. trading securities where a company has holdings of less
present value of the future cash flows. than 20%.
c.securities where a company has holdings of between 20%
*59.In a troubled debt restructuring in which the debt is and 50%.
continued with modified terms and the carrying amount of d. securities where a company has holdings of more than
the debt is less than the total future cash flows, the creditor 50%.
should
a. compute a new effective-interest rate. 30.A requirement for a security to be classified as held-to-
b. not recognize a loss. maturity is
c. calculate its loss using the historical effective rate of the a. ability to hold the security to maturity.
loan. b. positive intent.
d. calculate its loss using the current effective rate of the c. the security must be a debt security.
loan. d. All of these are required.
CHP 17 31.Held-to-maturity securities are reported at
21.Which of the following is not a debt security? a. acquisition cost.
a. Convertible bonds b. acquisition cost plus amortization of a discount.
b. Commercial paper c. acquisition cost plus amortization of a premium.
c. Loans receivable d. fair value.
d. All of these are debt securities.
32.Watt Co. purchased $300,000 of bonds for $315,000. If
22.A correct valuation is Watt intends to hold the securities to maturity, the entry to
a. available-for-sale at amortized cost. record the investment includes
b. held-to-maturity at amortized cost. a. a debit to Held-to-Maturity Securities at $300,000.
c. held-to-maturity at fair value. b. a credit to Premium on Investments of $15,000.
d. none of these. c. a debit to Held-to-Maturity Securities at $315,000.
d. none of these.
23.Securities which could be classified as held-to-maturity 33.Which of the following is not correct in regard to trading
are securities?
a. They are held with the intention of selling them in a short
b. warrants. period of time.
b. Unrealized holding gains and losses are reported as part of
d. treasury stock. net income.
c. Any discount or premium is not amortized.
24.Unrealized holding gains or losses which are recognized d. All of these are correct.
in income are from securities classified as 34.In accounting for investments in debt securities that are
a. held-to-maturity. classified as trading securities,
a. a discount is reported separately.
c. trading. b. a premium is reported separately.
d. none of these. c. any discount or premium is not amortized.
d. none of these.
P25. When an investor's accounting period ends on a date 35.Investments in debt securities are generally recorded at
that does not coincide with an interest receipt date for bonds a. cost including accrued interest.
held as an investment, the investor must b. maturity value.
credit Interest Revenue for the amount of interest accrued d. maturity value with a separate discount or premium
since the last interest receipt date. account.
b. notify the issuer and request that a special payment be 36.Jordan Co. purchased ten-year, 10% bonds that pay
made for the appropriate portion of the interest period. interest semiannually. The bonds are sold to yield 8%. One
c. make an adjusting entry to debit Interest Receivable and to step in calculating the issue price of the bonds is to multiply
credit Interest Revenue for the total amount of interest to be the principal by the table value for
received at the next interest receipt date. a. 10 periods and 10% from the present value of 1 table.