Chapter 5

Question 1

How to record reasonably possible loss?

Answer 1

Reasonably possible loss is only disclosed, but not accrued

Question 2

How to record probable gain contingency?

Answer 2

Per GAAP requires gain contingencies that are probable or reasonable possible to be disclosed. BUT NOT ACCRUED on FS.

Question 3

Disclosed over Accrued rule

Answer 3

Disclosed you can “probable” or “reasonable” los or gain. BUT only probable loss can be accrued.

Question 4

Present Value Formula

Answer 4

Present Value = Future value * Present value factor (is the discount rate)

Question 5

To receive $1,000,000 company need to make 4 deposits?

Answer 5

$1,000,000 / future amount of annuity in advance of 1 at 10% for 4 periods (5.11) = 195,695.

Question 6

The market value of a bond issued at discount ( or a premium) is the present value of two cash flows.

Answer 6

1. The present value of the principal amount, plus
2. The present value of all future interest payments,
3. Both at the market (effective) rate of interest.

Question 7

Serial bonds definition

Answer 7

bonds are redeemed pro-rata over the life of the issue and would include (“bonds maturing annually”)

Question 8

Debenture bonds definition

Answer 8

Bonds which are unsecured

Question 9

ordinary annuity vs annuity due

Answer 9

An annuity due is an annuity with a payment due or made at the beginning of the payment interval. In contrast, an ordinary annuity generates payments at the end of the periodA common example of an annuity due is rent payments made to a landlord, and a common example of an ordinary annuity includes mortgage payments made to a lender.