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F5 Flashcards

1
Q

On July 1. Year 1 ran company issued realty tax assessments for its fiscal year end June 30, year 2.On September 1, year 1. Day purchased a warehouse in ran county. The purchase price was reduced by a credit for a crew realty taxes. They did not record the entire year‘s real estate tax legation , but instead records tax expenses at the end of each month but I just in pre- pay real estate taxes or real estate payable, as appropriate. on November first at your one day paid though first of two equal installments of $12,000 for realty taxes. What amount of this payment should Day record as a debit to real estate taxes payable?

  1. 8,000
  2. 10,000
  3. 4,000
  4. 12,000
A
  1. 8,000

$4,000 debit to prepaid real estate taxes, as of November 1, year 1.

9/1/Year 1 July & Aug = 2/12 x 24,000 (4,000)

9/30Y1 accrue sept 1/12 x 24,000 (2,000)

10/30Y1 accrue sept 1/12 x 24,000 (2,000)

11/1/Y1 Payment $12,000 debited -8,000 = 4,000

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2
Q

Credits to sales revenue /Sales tax rate plus one =

A

Sales Revenue

$27,560/1.06 = 26,000 sales revenue

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3
Q

A customer is considering buying a television set with a retail price of $2000. The customer asked the store manager if the store will consider paying the taxes so that the total cash payment is $2000. The sales tax is 8%. The store manager agrees to accept $2000 cash. What should the accountant credit in its transaction?

Sales. Sales Tax Payable

  1. $1852. $148
  2. $2000. $148
  3. $1840. $160
  4. $2000. $0
A
  1. $1852. $148

2000/1.08 = 1,852

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4
Q

Vacation liability must be recorded for employees who have earned vacation where rights accumulate and they have not taken the vacation time at your end. Vacation expense is recorded to reflect the amount of vacation earned for a given period regardless of whether it.…………

A

Was taken or not

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5
Q

Deferred tax liability………… Included in total current liabilities because All deferred tax liabilities are classified as……

A

Should not , non-current

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6
Q

At the beginning of the year, the carrying value of an asset was $1 million with 20 years of remaining life. The fair value of the liability of the asset retirement obligation was $100,000. At your end, the caring value of the asset was $950,000. The risk-free interest rate was 5%. The credit adjusted risk-free interest rate was 10%. What was the amount of accretion expense for the year related to the asset retirement obligation?

  1. 100,000
  2. 50,000
  3. 95,000
  4. 10,000
A
  1. 10,000

A creation expense is to increase in the ARO liability due to the passes of time. The credit adjusted interest rate is used to calculate the ARO, as follows:

(Beginning ARO x risk-adjusted rate= $100,000 x 10% = $10,000)

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7
Q

On March 1, year 1, find Co. Borrowed $10,000 and signed a two-year note bearing interest at 12% per annum compounded annually. Interest is payable in full at maturity on February 28, you’re three what amount should find report as a liability for accrued interest at December 31, year 2?

  1. 1,200
  2. 2,320
  3. 1,000
  4. 0
A
  1. 2,320

12%, 2 yr note payable 10,000
Y1 int. exp. 12% x 10k x10/12 1,000
Year 1 net liability. 11,000
Yr 2 int. Exp. 12% x 11,000. 1,320

1,000 + 1,320 = 2,320

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8
Q

Long-term debt that matures within one year should be classified as a……… Liability, unless retirement is to be accomplished with other than current assets.

A

Current

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9
Q

On October 1, year one, gold borrowed $900,000 on be repaid in three equal, angle installments. The note payable bears interest at 5% annually. Gold pay the first installment of $300,000 plus interest on September 30, year 2. What amount should gold report as a current liability on December 31, yr 2?

  1. 303,750
  2. 307,500
  3. 330,000
  4. 300,000
A
  1. 307,500

(December 31, you’re two of $600,000 x 5% = $30,000 (this represents interest for 12 months). When $30,000 of interest is divided by 12 months, we get $2,500 per month. Interest is accrued for the month of October, November, and December. 3× $2500 = $7500

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10
Q

When calculating compensation expense for the curry year if they were bonuses for officers for a current year but paid in the following year, one must…… to/from amount

A

Add to

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11
Q

At December 31 year one, Tony estimates that its employees have earned vacation pay of $100,000. Employees will receive their vacation pay and you’re too. Should Tony accrue a liability at December 31, your wine, if the rights to this compensation accumulated overtime or if the rates are vested?

A

Yes (Accumulated) yes (vested)

Employees compensation for future absences mostly vacation should be accrued if

  1. services have already been rendered, and
  2. the obligation relates to vested or accumulated rights, and
  3. the amount can be reasonably estimated, and
  4. payment is probable
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12
Q

If a borrower is not financially capable of honoring the agreement to pay back amount, the short term obligation will be……..to/from current liabilities

A

Excluded from

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13
Q

With a $100,000 short term construction loan be reported as a short-term liability or a long-term liability if refinanced before the insurance of financial statements?

A

Long-term liability

(if the short term construction long was refinanced after the issuance of the financial statements then it would’ve stayed as a short term liability).

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14
Q

Which of the following is a cost associated with exit and disposal activities?

  1. Costs associated with the retirement of a fixed asset.
  2. Costs to relocate employees
  3. Benefits related to voluntary employee termination
  4. Costs to terminate a capital lease
A
  1. Relocate employees
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15
Q

Are periodic payments of interest classified as accounts payable

A

No

A liability that requires the periodic payment of interest should be classified as an accrued liability or debt

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16
Q

Are secured by collateral associated with payables classified as accounts payable?

A

No

A liability that is secured by collateral should be classified as a loan payable

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17
Q

Which of the following is not a criteria of recognizing a liability associated with exit or disposal activities?

  1. The existence of a present obligation to transfer assets in the future
  2. The entity has no discretion to avoid the future transfer of assets
  3. The occurrence of an obligation event
  4. A commitment to an exit plan
A
  1. A commitment to an exit plan
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18
Q

An entity, upon initial recognition of an asset retirement obligation, should not take which of the following actions?

  1. Measure the asset requirement cost at fair value
  2. Capitalized the asset retirement cost at is on discounted cash flow value.
  3. Capitalize the asset retirement cost by increasing the caring amount of the related asset
  4. Allocate asset retirement costs to expense already useful life of the related asset
A
  1. Capitalized the asset retirement cost at is on discounted cash flow value.

The amount recorded to both the asset and liability will equal to the fair value of the asset retirement obligation (which is determined by discounting the future cash flows required).

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19
Q

At the beginning of year one, a company hired an executive whose contract included the promise of payment of $100,000 in each of years six, seven, and eight, if the executive is employed at the end of year five. How should the compensation expense associated with disc contract being recorded?

  1. $300,000 when the contract is signed
  2. $37,500 in each years 1 through 8
  3. $100,000 in each of years 6 through 8.
  4. $60,000 in each of year 1 through 5.
A
  1. $60,000 in each of year 1 through 5.

If terms of deferred compensation arrangement attribute all or a portion of expected future benefits to a period of service greater than one year, the cost of benefits should be recognized over that require. Service

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20
Q

Contingent liabilities are recorded when they are………… and estimable. Although gap requires a cruel of the best estimate, in the event that only a range of liabilities is numb, the minimum amount of the range is recorded

A

Probable

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21
Q

What is the underlying console governing the generally accepted accounting principles pertaining to recording gain contingencies?

  1. Relevance
  2. Reliability
  3. Conservatism
  4. Consistency
A
  1. Conservatism

Contingencies that might result in gains usually are not reflected in the accounts since two due so might be to recognize revenue prior to his realization. The accounting concept of conservatism applies (anticipate all losses but not gains).

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22
Q

Only a loss that is probable an estimate of all will be accrued. Reasonably possible losses are

A

Disclosed in the notes only

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23
Q

V sells appliances that include a three-year warranty. Service calls under the warranty are performed by an independent mechanic under a contract with V. Based on experience, warranty costs are estimated at $30 for each machine sold. When should V recognizes his warranty cost?

  1. When payments are made to the mechanic.
  2. Evenly over the life of the warranty.
  3. When the service calls are performed.
  4. When the machines are sold.
A
  1. When the machines are sold.

(at the date of sale, the warranty cost are probable and estimable and must be recognized).

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24
Q

Which of the following is reported as interest expense?

  1. Pension cost interest
  2. Post retirement healthcare benefits interest
  3. Interest incurred to finance construction of machinery for own use
  4. Imputed interest on non-interest bearing note
A
  1. Imputed interest on non-interest bearing note

(All the others are expense for something else not interest).

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25
Q

On December 31, Ralph issued a $12,000 Faith value no payable to wait in exchange for services rendered to Roth. The note, made at usual trade terms, is due in nine months in bearing interest, payable at maturity, at the annual rate of 3%. The market interest rate is 8%. The compound interest factor of one dollar due in nine months at 8% is .944. At what amount should the note payable be reported in Ross December 31 balance sheet?

  1. 12,000
  2. 12,360
  3. 11,660
  4. 11,820
A
  1. 12,000

(Because the tree terms do not exceed one year. The note is recorded at $12,000.

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26
Q

On November 1, year 1, a company purchased a new machine that does not have to pay for until November 1 year 3. The total payment of November 1, year three, will include both principal and interest. Assume interest at a 10% rate, the cost of the machine would be the total payment multiplied by what time value of money concept?

  1. Future amount of 1.
  2. Future amount of annuity of 1
  3. Present value of annuity of 1
  4. Present value of 1
A

Present value of 1.

(The cost of the machine would be the total payment (principal and interest all due two years in the future) multiplied by the present value of 1 (at a 10% rate).

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27
Q

The discount resulting from the determination of a no payables present value should be reported on the balance sheet as a?

  1. Direct reduction from the face amount of the note
  2. Deferred credit separate from the note
  3. The fire charge separate from the note
  4. Addition to the face amount of the note
A
  1. Direct reduction from the face amount of the note

(The discount on a note payable should be reported on the balance sheet as a direct reduction from the face amount of the note).

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28
Q

Bonds or notes due within a year are shown as…… If the issue or has the intent in ability to refinance with a new issuance of long-term debt.

A

Noncurrent

(This intent and ability must usually be demonstrated through refinancing of the day after the balance sheet date, but before the issuance of the financial statements). Separate disclosure of the refinancing is required.

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29
Q

On December 31, your wine, take mortgage gave pod a $200,000, 12% loan. Piracies proceeds of $194,000 after the deduction of a $6000 nonrefundable loan origination fee. Principal and interest I do in 60 monthly installments of $4,450, beginning January 1, year 2. The repayment to yield in effective interest rate of 12% at a present value of $200,000 and 13.4% at a present value of 194,000. What amount of accrued interest receivable sure to include in is December 31, year 1, balance sheet?

  1. $0
  2. $4,450
  3. $2,000
  4. $2,166
A
  1. $2,000

(Year 1 balance sheet.
200,000 x 12% x 1/12 = 2,000)

30
Q

Joel lent $10,000 to a major supplier in exchange for a non-interest-bearing note due in three years in a contract to purchase a fixed amount of merchandise from the supplier at a 10% discount from prevailing market prices over the next three years. The market rate for a note of this type is 10%. On issuing the note Joel should record discount on note receivable & deferred charge yes/no?

A

Yes Yes

(In this transaction, $10,000 exchange for a non-interest-bearing note receivable and a commitment to purchase merchandise at a 10% discount. In order to correct Lee account for the transaction, interest must be in pewter on tonight interest-bearing note, which will result in the recognition of a discount on the note receivable, and the purchase Commitment must be recognized, which will resolve in the recognition of a defer charge.

31
Q

A company issued a short term note payable with a state at 12% rate of interest to a bank, the bank Charis a .05% loan origination fee and remitted the balance to the company. The effective interest rate paid by the company in this transaction would be?

  1. Less than 12.5%
  2. Equal to 12.5%
  3. More than 12.5%
  4. Independent of 12.5%
A
  1. More than 12.5%

(Effective interest rate pay by the company will include all cost charge by the bank such as. 05% loan origination fee. Since the loan origination fee was taken out upfront, the companies effective interest rate is more than 12.5% due to the loss of the company of the time value of the money involved

12% + 0.5%/ 100% -0.5% = 12.5%/99.5% = 12.563%

32
Q

When December 30, year one, Chang company sold a machine to door company in exchange for a non-interest-bearing note requiring 10 annual payments of $10,000. Door made the first payment on December 31, Jireh one. The market interest rate for similar notes add date of issuance was 8%. Information on present value factors is as follows:

Period 9, PV of $1 at 8% = 0.50, PV of ordinary annuity of $1 at 8%= 6.25
Period 10, 0.46, 6.71

And it’s December 31, you’re one, balance sheet, what amount should Chang report has not receivable?

  1. 67,100
  2. 45,000
  3. 45,000
  4. 62,500
A
  1. $62,700

(Because the first payment would be received on December 30 before December 31 year 1, there will be nine more payments to be received. Present value of this ordinary annuity of nine equal payments with a market interest rate of 8% is calculated as $10,000 times 6.25, or $62,500

33
Q

On January 1 of the current year, lean company made an investment of $10,000. The following is the present value of one dollar discount at a 10% interest-rate

Period PV of $1.09 discounted at 10%

  1. .909
  2. .826
  3. .751

What amount of cash will Lean accumulate in two years?

  1. 27,002
  2. 12,107
  3. 16,250
  4. 12,000
A
  1. 12,107

(Present value = future amount x Present value factor

10,000 = future value x .826 (P2 rate)
Future amount = 10,000 / .826 = $12,107

34
Q

Leaf company purchased from Oak Company A $20,000 comma 8%, five year note that require five equal annual year in payments of $5009. The note was discounted to yield a 9% rate to leave. At the date of purchase, leaf recorded the note at its present value of $19,485. What should be the total interest revenue earned by leaf over the life of this note?

  1. 9,000
  2. 8,000
  3. 5,045
  4. 5,560
A
  1. 5,560

(Total payments (5,009 x 5) $25,045
Principal paid at PV ($19,485)
Interest Revenue. $. 5,560

35
Q

A none interest bearing note should be recorded at………… calculated using the prevailing market interest rate. The market interest-rate is then used to calculate interest on the note

A

Present value

600,000(Face Amount) x .75(Present Value) = 450,000 (carrying amount) x 10% ( interest rate) = 45,000 (interest income)

36
Q

Ace company sold to King company a $20,000, 8%, five year note that required five equal annual year in payments. There’s no it was discounted to yield a 9% rate to King. The present value factors of an ordinary annuity of $1for five periods are as follows:

8% 3.992
9%. 3.890
What should be the total interest revenue earned by King on this note?

  1. $5,050
  2. $9,000
  3. $5,560
  4. $8,000
A
  1. $5,560

Annual payments = 20k / 3.992= 5,010
Five equal payments. x 5
Total payments. 25,050
Discount note $5,010 x 3.890 (19,490)

Total interest over fire years. $5,560

37
Q

W On September 1, year one, Cobb company issued a note payable to national bank in the amount of $900,000, bearing interest at 12%, and payable and three equal annual principal payments of $300,000. On this date the banks prime rate was 11%. The first payment of interest and principal was made on September 1, year 2. December 31 year to Cobb should record accrued interest payable of:

  1. 22,000
  2. 24,000
  3. 36,000
  4. 33,000
A
  1. 24,000

900,000 - 300,000 = 600,000 x 4% (12% x4/12 interest rate and time) = 24,000

38
Q

No an interest of bearing notes payable are reported that the …….. value of …….. value cash flows.

A

Present value of future value

The present value of non current future cash flows totaling $950,000 equals 418,250 (creating a discount on Notes payable). The present value of the current portion of the liability is $50,000.

39
Q

A company finances to purchase of equipment with a $500,000 and five year note payable. I don’t know it has an interest rate of 12% in a monthly payment of $11,122. Add to two payments have been made, what amount should the company report as the note payable balancing is December 31?

  1. 487,756
  2. 490,061
  3. 487,695
  4. 477,756
A
  1. 487,695

11,122. $500k x 0.01 (12%/12) $5,000
$6,122

11,122 $493,878 x 0.01(12%/12) $4,939
$6,183

500,000 - $6,122 = $493,878 - $6,183 = $. 487,695

40
Q

Loan origination fee shall be …………………..over the life of the loan as an adjustment to interest income

A

Deferred and recognized

200,000 face 
   (6,000) non refundable loan orig fee
194,000.    Net amount loaned 
     12.4%.   Effective interest rate (yield)
   24,056
 x 1/12.      Outstanding 12/1 -12/31
$. 2,005.   Interest income for year1
41
Q

On July 1, Lee company sold goods in exchange for a $200,000, eight month, not interest bearing note receivable. At the time of the sale, the notes market rate of interest was 12%. What amount deadly receive one a discounted to know at 10% on September 1?

  1. 194,000
  2. 190,000
  3. 188,000
  4. 193,000
A
  1. 190,000

200,000 face amount
(10,000) bank discount 10% x 6/12 =5%
190,000. Proceeds from bank

Cash received when the note was discounted at the bank on December 1. Six months remaining on the eight month from now on September 1.

42
Q

Trade notes and accounts receivable with customary trait turns not exceeding one year maybe recorded at…………amount?

A

Face amount

43
Q

What type of bonds in a particular buy an issue it will not all mature on the same day?

  1. Term bonds
  2. Debenture bonds
  3. Sinking fund bonds
  4. Serial bonds
A
  1. Serial bonds

(Serial bonds are bonds that mature in installments).

44
Q

Turn bones are issued with a……… Maturity date

A

Single fixed date

45
Q

For the entire face amount of bonds when bonds are issued would, bonds payable account be Debit or credit?

A

Credit

46
Q

If the discount includes the bon issuance cost then it will be amortized using the………… Method

A

Effective interest method

47
Q

The market price of a bond issued at a discount is the present value of its principal amount at the market effective rate of interest:

  1. Plus The present value of all future interest payments at the rate of interest stated on the bond
  2. Less the present value of all future Interest payments at the rate of interest stated on the bond
  3. Plus the present value of all future interest payments at the market effective rate of interest
  4. Less the present value of all future interest payments at the market effective rate of interest
A
  1. Plus the present value of all future interest payments at the market effective rate of interest
48
Q

Bond issue prices the sum of… Values of the maturity value and interest payment annuity

A

Present values

(When is comes to issue price use the present value & yield. For the ordinary annuity use the stated interest rate times the bond then the yield).

49
Q

An investor purchased a bond classified as a long-term investment between interest dates at a discount. At the purchase date, the carrying amount of the bond is more than:

Cash paid Face amount
To seller. Of bond
Yes. Yes
No. No
Yes. No
No. Yes

A

No. No

Carry value less than the cash paid by the investor because a crude interest is included in the cash.
Caring value is less than the face amount of the bond because it was purchased at a discount


50
Q

The bond premium is amortized over the life of the bond with amortized amounts decreasing interest expense each period. If interest expensive is not appropriately decreased, then the interest expense will be…..stated. The… Stating of interest expense will lead to the…… Statement of net income, which is then close to stockholders equity

A

Overstated. Understated

51
Q

Serial bonds are redeem pro rata over the life of the issue and will include any bonds that are……… Annually

A

Maturing annually

52
Q

Debenture bonds are……… Bonds and would include all bonds under the…… Caption

A

Unsecured

53
Q

On June 30 of the current year tough corporation issued a 99, 1000 of its 8%, $1000 bonds. Tough uses US GAAP. The bonds were issued through an underwriter to home half paid by the issuance cost of $35,000. On June 30 of the current year, tough should report the body liability at:

  1. 955,000
  2. 1,025,000
  3. 1,000,000
  4. 990,000
A
  1. 955,000

1000 x 99 = 990,000
990,000 - 35,000 = 955,000

Discount or premium on the sale of bonds as well as the bond insurance costs are included in the carrying value of the bonds on the balance sheet

54
Q

When warrants are detachable, the issue price of the bonds and warrants together should be allocated based on each component………… Values on the issuance date

A

Fair values

55
Q

The long-term liabilities will increase by the difference between……………amount of the old 15 year bond and the face amount (issuing price) of the new 10-year bond.

A

Carrying amount

(Bond liability is shown on the balance sheet net of unauthorized discount).

56
Q

Which of the costs associated with the issuance of bonds should be amortized over there outstanding term of the bonds can be included under US GAAP?

  1. Promotion cost
  2. Underwriting commissions
  3. Engraving and printing
  4. All
A
  1. All cost
57
Q

The yield is also known as the

A

Market rate

58
Q

If the contract interest rate is greater than the yield then that indicates the bond will sell at a?

A

Premium

59
Q

When using the effective interest method of emertising bond discount one must add in the variance between the income statement and the………

A

Balance Sheet

IS 469,500 x 10% = 46,950
BS 500,000 x 9% = 45,000

46,950 - 45,000 = 975

975 + 469,500 = 470,475

60
Q

A corporation recently issued 4 million of 10 year, 3% bonds at 101. There were 200,000 detachable Star Wars included as part of the sale. Each warrant allows the Bonnholder to purchase one share of no par coming stock for $12 per share. On the date of the issuance, the stock warrants had a fair value of $1 per warrant. But what amount of the corporations long-term debt increase as a result of this issuance?

  1. 4,000,000
  2. 4,200,000
  3. 4,040,000
  4. 3,840,000
A
  1. 3,840,000

4M x 101 = 4,040,000
200k x $1 = 200k fair value per warrant

4,040,000 - 200,000 = 3,840,000

61
Q

When day is issued at a discount, interest expense over the term of debt equals the cash interest paid:

  1. Minus discount
  2. Plus discount
  3. Minus discount minus par value
  4. Plus discount plus par value
A

Plus discount

62
Q

When calculating the carrying amount of a bond issued at a discount, the ending caring amount of a bond is equal to the beginning carrying amount…… the discount amortize during the current.

A

Plus the discount

63
Q

When it comes to amortization, amortization of a discount increases or decreases the carrying amount of the bond?

A

Increases the carrying amount of the bond

64
Q

A company issued a bond with a stated rate of interest that is less than the effective interest rate on the date of issuance. The bond was issued on one of the interest payment dates. What should the company report on the first interest payment date?

  1. A debit to the unamortized bond premium
  2. An interest expense that is greater than the cash payment made to bondholders
  3. A debit to the unamortized bind discount
  4. An interest expense that is less than the cash payment made to bondholders.
A
  1. An interest expense that is greater than the cash payment made to bondholders
65
Q

The interest payable on a bond is calculated by taking the……… value at the beginning of the period and multiplying this amount by the ………… Interest rate

A

Face value,

Contractual interest rate

66
Q

On July 1, you’re wine, evil corporation issue the 600 of his 10%, $1000 bonds at 99+ a crude interest. The bonds are dated April 1, year 1 and mature on April 1, year 11. Interest is available semi annually on April 1 and October 1. What amount to Eagle received from the bond insurance?

  1. 594,000
  2. 579,000
  3. 609,000
  4. 600,000
A
  1. 609,000

(600 x 1000 = 600,000 x 99% = 594,000
600,000 x 10% = 60,000
60,000 x 3/12 = 15,000

594,000 + 15,000 = 609,000

67
Q

Interest expense is calculated from the date the bond is………. Interest would be calculated from……through December 31

A

Issued,

Issue date

68
Q

Nova corporation issue 2000 of its $1000, 10% tin year buns dated July 1, year one on July 1, year one at a time when the market pay 9% for buns of similar risk. Interest is payable annually. The bonds were properly carried at $2,134,000 upon issue. On its December 31, Year 1 financial statements, Nova corp would display

BP 2,000,000 unamortized premium: 130,030. Accrued interest payable: 100,000
Interest expense: 96,030

A

IE = 2,134,000 x 9% x 1/2 = 96,030
IP = 2,000,000 x 10% x 1/2 = 100,000
PA = 100,000 - 96,030 = 3,970
Unamort P = 134,000 - 3,970 = 130,030

69
Q

Can do company neglected to amortize the premium or an outstanding 10 year term bonds payable. What is the effect of the failure to record premium amortization on interest expense and bond carrying value, respectively?

A

Overstated, overstated

Amortization of premium on bonds payable reduces both interest expense and carry in value. If the immatization were not done, both interest six minutes and carrying value would be overstated

70
Q

If a bond Has no premium left to be amortized but the wrong method was used to advertise the premium, what would be the error effect of the bond carrying amount and retained earnings?

A

No effect

(Regardless of the method the bonds will be fully amortized and be reflected on the balance sheet at par (face) value because there is no premium left to be amortized, and because the total amount to be amortize is the same regardless of the methodology used

FAR (7 decks)

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