F4

Question 1

liabilities

Answer 1

probable future sacrifices of economic benefits arising from present obligations of an entity to transfer assets or provide services to other entities in the future as a result of past transactions or events

Question 2

gross method

Answer 2

records the purchase without regard to the discount. If invoices are paid within the discount period, a purchase discount is credited

Question 3

net method

Answer 3

• purchases and accounts payable are recorded net of the discount
• If payment is made within the discount period, no adjustment is necessary
• if payment is made after the discount period, a purchase discount lost account is debited

Question 4

trade notes payable

Answer 4

formal, written promises to pay on a certain date that arise from the purchase of goods, supplies, or services

Question 5

short term obligations may be excluded from current liabilities and included in non-current debt if

Answer 5

the company intends to refinance it on a long-term basis and the intent is supported by

Question 6

unemployment taxes and the employers share of payroll taxes should be accrue by

Answer 6

the employer as an expense

Question 7

self-insurance

Answer 7

occurs when an entity is liable for risk, they choose to bear themselves rather than obtaining third-party insurance

Question 8

a liability associated with an exit or disposal activity should be recognized only when

Answer 8

a transaction or even occurs that creates a present obligation of an entity to transfer an economic benefit

Question 9

costs associated with an exit or disposal activity not related to a discontinued operation will be reported in

Answer 9

income from continuing operations

Question 10

asset retirement cost

Answer 10

the amount capitalized (asset) that increases the carrying amount of the long-lived asset when a liability for an asset retirements obligations is recognized

Question 11

accretion expense

Answer 11

the increase in the ARO liability due to the passage of time calculated using the appropriate accretion rate

Question 12

the asset retirement obligation is recorded at

Answer 12

a discounted amount

Question 13

accretion expense is the

Answer 13

growth of the liability over time so that at the time the liability is satisfied, it is reported at its non-discounted value

Question 14

the cumulative accretion expense plus depreciation expense recognized on the income statements over the accretion period should be equal to the

Answer 14

total asset retirement obligation

Question 15

estimated cash flows are used to calculate the

Answer 15

discounted ARO liability reported on the balance sheet

Question 16

contingency

Answer 16

an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss that will ultimately be determined when a future event occurs or fails to occur

Question 17

gain contingencies

Answer 17

claims or rights to receive assets whose existence isd uncertain but may become valid upon the occurrence of future events

Question 18

how do you record gain contingencies

Answer 18

an entity should disclose a contingency that might result in a gain in the notes to the financial statements

Question 19

provision for a loss contingency should be accrued by a charge to income, providing that both of these conditions are met

Answer 19

• probable
• reasonably estimated

Question 20

is both conditions are not met

Answer 20

a financial statement disclosure shall be made

Question 21

remote loss

Answer 21

no disclosure is necesssary

Question 22

annuities

Answer 22

transactions that result in identical periodic payments or receipts at regular intervals

Question 23

ordinary annuity

Answer 23

payments are made at the end of each period

Question 24

annuity due

Answer 24

payments occur at the beginning of each period

Question 25

present value

Answer 25

the amount that must be invested now at a specific interest rate so that $1 can be paid or received in the duture

Question 26

future value

Answer 26

the amount that would accumulate at a future point in time if $1 was invested now

Question 27

present value of an ordinary annuity

Answer 27

the current worth of a series of identical periodic payments to be made in the future

Question 28

notes payable

Answer 28

must be recorded at present value at the date of issuance

Question 29

effective interest method

Answer 29

each payment on a note is allocated t interest and principal as though the note had a constant effective stated rate or interest

Question 30

bond indenture

Answer 30

the document that describes the contract between the issuer (borrower) and bond holders (lenders)

Question 31

face (par) value

Answer 31

face value is the total dollar amount of the bond and the basis on which periodic interest is paid

Question 32

stated (nominal or coupon) interest rate

Answer 32

the interest to be paid to the investors in cash

Question 33

market interest rate

Answer 33

the rate of interest actually earned by the bondholder and is the rate of return for comparable contracts on the date the bonds are issued

Question 34

discount

Answer 34

if the market rate is higher than the stated rate, the bonds will be issued at a discount

Question 35

premium

Answer 35

if the market rate is lower than the stated rate, the bonds will be issued at a premium

Question 36

debentures

Answer 36

unsecured bonds

Question 37

mortgage bonds

Answer 37

bonds that are secured by real property

Question 38

collateral trust bonds

Answer 38

secured bonds

Question 39

convertible bonds

Answer 39

convertible into common stock

Question 40

detachable warrants

Answer 40

the warrants can be bought and sold separately from the bonds

Question 41

participating bonds

Answer 41

bonds that not only have a stated rate of interest but participate in income if certain earnings levels are obtained

Question 42

term bonds

Answer 42

bonds that have a single fixed maturity date. the entire principal is paid at the end of the term/period

Question 43

serial bonds

Answer 43

prenumbered bonds that the issuer may call and redeem a portion by serial number

Question 44

income bonds

Answer 44

bonds that only pay interest if certain income objectives are met

Question 45

zero coupon bonds

Answer 45

bonds sold with no stated interest but rather at a discounted and redeemed at the face value wuithout periodic interest payments

Question 46

commodity-backed bonds

Answer 46

bonds that are redeemable either in cash or a stated volume of commodity, whichever is greater

Question 47

par value

Answer 47

the stated rate on the bond is equal to the market (effective) interest rate on the date the bonds are issued

Question 48

bonds issued at a discount rate

Answer 48

the stated rate on the bond is less than the market (effective) interest rate on the date the bonds are issued

Question 49

bonds issued at a premium

Answer 49

the stated rate on the bond is greater than the market (effective) interest rate on the date the bonds are issued

Question 50

sated interest rate

Answer 50

typically printed on the bond and included in the bond indenture before the bond is brought to market

Question 51

does the stated rate of a bond change

Answer 51

no, regardless of the market rate at the date of issuance

Question 52

effective interest rate

Answer 52

because the amount of cash to be received in the future is fixed at te time the bond is sold, the market will automatically adjust the issue price of the bond so that the purchaser receives the market rate of interest

Question 53

Bond discount

Answer 53

- the market rate of interest is higher than the stated rate of interest on the bond - sells for less than face value

Question 54

unamortized discount

Answer 54

- contra account to bonds payable - direct reduction from the face (par) value of the

Question 55

bond discount represents

Answer 55

additional interest to be paid to investors at the bond maturity and is amortized over the life of the bond

Question 56

the discount is

Answer 56

amortized over the life of the bond with amortized amounts increasing interest expense each period

Question 57

premiums

Answer 57

- the market rate of interest is lower than the stated interest rate on the bonds - bonds will sell for more than the face value

Question 58

unamortized premium

Answer 58

presented on the balance sheet as a direct addition to the face (par) value

Question 59

amortization of the premium

Answer 59

amortized amounts decreasing interest expense each period

Question 60

carrying value

Answer 60

face plus the balance of unamortized premium or face minus the balance of unamortized discount

Question 61

bond issuance costs incurred before the issuance of the bonds are

Answer 61

deferred on the balance sheet until the bond liability is recorded

Question 62

modification of terms and conditions

Answer 62

the debt has not been extinguished

Question 63

total future cash payments

Answer 63

the principal and any accrued interest at the time of the restructuring that continues to be payable by the new terms

Question 64

interest expense

Answer 64

the discount rate at which the carrying amount of the debt is equal to the present value of the future cash payments

Question 65

when the total (undiscounted) future cash payments are less than the carrying amount, the debtor should

Answer 65

reduce the carrying amount accordingly and recognize the difference as a gain restructuring of debt

Question 66

no gain on restructuring can be recognized unless

Answer 66

the carrying amount of the payable exceeds the total future cash payments

Question 67

a loan is considered impaired if

Answer 67

it is probable that the creditor will be unable to collect all amounts due under the original contract when due

Question 68

a liability cannot be derecognized in the financial statements until it has been

Answer 68

extinguished

Question 69

if a bond is extinguished before maturity

Answer 69

a gain or loss is generally recorded

Question 70

a liability is considered extinguished if

Answer 70

the debtor is legally released from being the primary obligator under the liability

Question 71

troubled debt restructuring would result in

Answer 71

the extinguishment of debt only if the debt were forgiven by the creditor as the result of a transfer of assets or the transfer of equity interest

Question 72

if the lease is a finance lease, the lessee will

Answer 72

recognize both an ROU asset and a corresponding liability on its balance sheet

Question 73

any incentives received by the lessee from the lessor will

Answer 73

reduce the value of the asset