FIN 461 UPDATED TEST PAPER QUESTIONS AND
ANSWERS SURE A+
✔✔Oil Exploration LLC paid $45,000 in printing, legal fees, commission, and other costs
associated with its recent bond issue. It is most likely to record these costs on its
financial statements as: - ✔✔An asset under US GAAP and reduction of the carrying
value of the debt under IFRS
✔✔A company issues $1,000,000 face value of 10-year bonds on Jan 1, 2015 when the
market interest rate on bonds of comparable risk and terms is 5%. The bond pays 6%
interest annually on December 31. At the time of the issue, the bonds payable reflected
on the balance sheet is closest to: (CPT TVM) - ✔✔$1,077,217
✔✔For a bond issued at a premium, using the effective interest rate method, the: -
✔✔Amortization of the premium increases each year
✔✔A company redeems $1,000,000 face value bonds with a carrying value of
$990,000. If
the call price is 104 the company will:
A . reduce bonds payable by $1,000,000.
B . recognize a loss on the extinguishment of debt of $50,000.
C . recognize a gain on the extinguishment of debt of $10,000. - ✔✔Recognize a loss
on the extinguishment of debt of $50,000
✔✔Innovative Inventions, Inc. needs to raise 10 million. If the company chooses to
issue zero-coupon bonds, its debt-to-equity ratio will most likely: - ✔✔Rise as the
maturity date approaches
✔✔Fairmount Gold issued fixed rate debt when interest rates were 6%. Rates has since
risen to 7 %. Using only the carrying amount (based on historical cost) reported on the
balance sheet to analyze the company's financial position would most likely cause an
analyst to: - ✔✔Overestimate Fairmont's economic liabilities
, ✔✔Which of the following is an example of an affirmative debt covenant? The borrow is:
a. prohibited form entering into mergers
b. prevented from issuing excessive additional debt
c. required to perform regular maintenance on equipment pledged as collateral -
✔✔Required to perform regular maintenance on equipment pledged as collateral
✔✔Debt covenants are least likely to place restrictions on the issuer's ability to"
A. pay dividends
B. issue additional debt
C. issue additional equity - ✔✔issues additional equity
✔✔Regarding a company's debt obligations, which of the following is most likely
presented on the balance sheet? - ✔✔The portion of long-term debt due in the next 12
months
✔✔Compared to using a finance lease, a lessee that makes use of an operating lease
will most likely report higher: - ✔✔Rent expense
✔✔Which of the following is most likely a lessee's disclosure about operating leases? -
✔✔Future obligations by maturity
✔✔For a lessor, the leased asset appears on the balance sheet and continues to be
depreciated
when the lease is classified as:
a) a sales-type lease.
b) an operating lease.
c) a financing lease. - ✔✔An operating lease
✔✔Under US GAAP, a lessor's reported revenues at lease inception will be highest if
the lease is classified as:
a sales-type lease.
an operating lease.
a direct financing lease. - ✔✔A sales-type lease
✔✔A lessor will record interest income if a lease is classified as: - ✔✔A capital lease
✔✔Compared with a finance lease, an operating lease: - ✔✔Is similar to renting an
asset
ANSWERS SURE A+
✔✔Oil Exploration LLC paid $45,000 in printing, legal fees, commission, and other costs
associated with its recent bond issue. It is most likely to record these costs on its
financial statements as: - ✔✔An asset under US GAAP and reduction of the carrying
value of the debt under IFRS
✔✔A company issues $1,000,000 face value of 10-year bonds on Jan 1, 2015 when the
market interest rate on bonds of comparable risk and terms is 5%. The bond pays 6%
interest annually on December 31. At the time of the issue, the bonds payable reflected
on the balance sheet is closest to: (CPT TVM) - ✔✔$1,077,217
✔✔For a bond issued at a premium, using the effective interest rate method, the: -
✔✔Amortization of the premium increases each year
✔✔A company redeems $1,000,000 face value bonds with a carrying value of
$990,000. If
the call price is 104 the company will:
A . reduce bonds payable by $1,000,000.
B . recognize a loss on the extinguishment of debt of $50,000.
C . recognize a gain on the extinguishment of debt of $10,000. - ✔✔Recognize a loss
on the extinguishment of debt of $50,000
✔✔Innovative Inventions, Inc. needs to raise 10 million. If the company chooses to
issue zero-coupon bonds, its debt-to-equity ratio will most likely: - ✔✔Rise as the
maturity date approaches
✔✔Fairmount Gold issued fixed rate debt when interest rates were 6%. Rates has since
risen to 7 %. Using only the carrying amount (based on historical cost) reported on the
balance sheet to analyze the company's financial position would most likely cause an
analyst to: - ✔✔Overestimate Fairmont's economic liabilities
, ✔✔Which of the following is an example of an affirmative debt covenant? The borrow is:
a. prohibited form entering into mergers
b. prevented from issuing excessive additional debt
c. required to perform regular maintenance on equipment pledged as collateral -
✔✔Required to perform regular maintenance on equipment pledged as collateral
✔✔Debt covenants are least likely to place restrictions on the issuer's ability to"
A. pay dividends
B. issue additional debt
C. issue additional equity - ✔✔issues additional equity
✔✔Regarding a company's debt obligations, which of the following is most likely
presented on the balance sheet? - ✔✔The portion of long-term debt due in the next 12
months
✔✔Compared to using a finance lease, a lessee that makes use of an operating lease
will most likely report higher: - ✔✔Rent expense
✔✔Which of the following is most likely a lessee's disclosure about operating leases? -
✔✔Future obligations by maturity
✔✔For a lessor, the leased asset appears on the balance sheet and continues to be
depreciated
when the lease is classified as:
a) a sales-type lease.
b) an operating lease.
c) a financing lease. - ✔✔An operating lease
✔✔Under US GAAP, a lessor's reported revenues at lease inception will be highest if
the lease is classified as:
a sales-type lease.
an operating lease.
a direct financing lease. - ✔✔A sales-type lease
✔✔A lessor will record interest income if a lease is classified as: - ✔✔A capital lease
✔✔Compared with a finance lease, an operating lease: - ✔✔Is similar to renting an
asset
