Int Acc II Exam I WITH 100% CORRECT ANSWERS 2024.

Bond price is state at ________________ - answer-a percentage of maturity value Which of the following investment securities held by Zoogle Inc. are not reported at fair value in its balance sheet? A) Debt securities held as available for sale securities. B) Debt securities held to maturity. C) Bonds held as trading securities. D) All of these answer choices are reported at fair value. - answer-(B) Debt securities held to maturity Which of the following is a contingency that should be accrued? A) The company is being sued and a loss is reasonably possible and reasonably estimable. B) The company deducts life insurance premiums from employees' paychecks. C) The company offers a two-year warranty and the expenses can be reasonably estimated. D) It is probable that the company will receive $100,000 in settlement of a lawsuit. - answer-(C) The company offers a two-year warranty and the expenses can be reasonably estimated Orange Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country. If expropriation is reasonably possible, a loss contingency should be: A) Disclosed but not accrued as a liability. B) Disclosed and accrued as a liability. C) Accrued as liability but not disclosed. D) Neither accrued as a liability nor disclosed. - answer-(A) Disclosed but not accrued as a liability. Straight-line amortization of bond discount or premium: A) Can be used for amortization of discount or premium in all cases and circumstances. B) Provides the same amount of interest expense each period as does the effective interest method. C) Is appropriate for deep discount bonds. D) Provides the same total amount of interest expense over the life of the bond issue as does the effective interest method. - answer-(D) Provides the same total amount of interest expense over the life of the bond issue as does the effective interest method. Short-term obligations can be reported as long-term liabilities if: A) The firm has a long-term line of credit. B) The firm has tentative plans to issue long-term bonds. C) The firm intends to and has the ability to refinance as long-term D) The firm has the ability to refinance on a long-term basis. - answer-(C) The firm intends to and has the ability to refinance as long-term A discount on a noninterest-bearing note payable is classified in the balance sheet as: A) An asset. B) A component of shareholders' equity. C) A contingent liability. D) A contra liability. - answer-(D) A contra liability. If market rate (10%) stated rate (9%) = _______ issue - answer-discount If market rate (10%) stated rate (12%) = _________ issue - answer-premium Journal entry: Bond issuance at discount - answer-Dr. Cash Discount on B/P Cr. B/P Journal Entry: Discount bond at interest payment - answer-Dr. Interest Expense Cr. Cash Discount on B/P (amortization) Journal entry: Bond issuance at premium - answer-Dr. Cash Cr. B/P Premium on B/P If a company borrows $612,000 and will pay back $600,000 at maturity, is the bond at discount or premium? - answer-Premium ______ represents saving of interest expense, and reduces the borrowing cost - answer-Premium (of a bond) - answer-Dr. Interest Expense Premium on B/P Cr. Cash Notes Payable: ______-term note: recorded at face value - answer-short Notes Payable: ____-term note: recorded at present value of future cash flows - answer-long Retirement of Bonds before Maturity: Option price(purchase price) book value(face vale +/- unamortized prem/disc) Loss or gain? - answer-Loss Retirement of Bonds before Maturity: if option price(purchase price) book value(face vale +/- unamortized prem/disc) Loss or gain? - answer-Gain Gain on credit or debit? - answer-credit Loss on credit of debit? - answer-debit effective rate (yield) - answer-the market rate at which the bonds are actually sold Purchasers of the bonds pay an amount less than the face value of the bonds - answer-Discount Effective interest rate is greater than the contract interest rate - answer-Discount Purchasers of the bonds pay an amount greater than the face value of the bonds - answer-Premium Effective interest rate is less than the contract interest late - answer-Premium PV of principal + PV of interest= - answer-Selling price of bond When bonds are sold at a discount, yield is ____ than contract rate - answer-higher When bonds are sold at a premium, yield is _____ than contract rate - answer-lower When bonds are sold at a _____, the interest expense is less than the interest paid with - answer-premium When bonds are sold at a _____, the interest expense is more than the interest paid with - answer-discount Difference of interest expense and difference paid= - answer-amortized premium/discount Bonds payable is always reported at _____ value - answer-face (value) Disc. on B/P is a(n) ____ account - answer-contra Discount on B/P appears on which financial statement? - answer-Balance Sheet (subtracted from bonds payable account) Premium on B/P is a(n) ____ account - answer-adjunct Premium on B/P affects which financial statement? - answer-Balance sheet (added to B/P in LT liability section) lease - answer-contract that conveys the right to control the use of an identified asset for period of time in exchange for rental payments finance lease - answer-effectively transfers control of the underlying asset operating lease - answer-does not transfer control of the underlying asset financing lease from the lessee's perspective - answer-an asset acquisition with related liablility to make future payments financing lease from the lessor's perspective - answer-effectively a sale of an asset in exchange for a financial instrument (a receivable) sales-type lease - answer-Lease that recognizes interest revenue like a direct-financing lease but that also recognizes a manufacturer's or dealer's profit. In a sales-type lease, the lessor records the sale price of the asset, the cost of goods sold and related inventory reduction, and the lease receivable. direct-financing lease - answer-lease in which the lessor finances the asset for the lessee and earns interest revenue over the lease term. Which of the following methods of accounting for investments is appropriate when the investor controls the investee? a.Equity method b.Cost method c.Lower of cost or market method d.Consolidation - answer-d.Consolidation How are unrealized gains and losses on available-for-sale debt securities reported in the financial statements? a.As part of net income b.Not recognized, disclosed in footnotes c.Not recognized or disclosed in footnotes d.As other comprehensive income - answer-d.As other comprehensive income How is the premium or discount on held-to-maturity bond investments presented on the balance sheet? a. As a part of the cost of the investment and amortized over the remaining lives of the bonds b. In a separate account that is reported separately from the investment account and not amortized c. In a separate account that is reported separately from the bonds and amortized over the remaining lives of the bonds d. As a part of the cost of the investment and amortized over a period not to exceed 5 years - answer-a. As a part of the cost of the investment and amortized over the remaining lives of the bonds After the initial investment, held-to-maturity debt securities are reported on the balance sheet at a. amortized cost. b. lower of amortized cost or market value. c. market value. d. original purchase amount - answer-a. amortized cost. If a lease does not meet any of the 5 criteria, it is classified as a(n) ___________ - answer-operating lease Specialized Nature Test: FASB suggest that ___% may be reasonable levels to consider as a "major part of the economic life" - answer-75 Specialized Nature Test: FASB suggest that ___% may be reasonable levels to consider as a "substantially all of the fair value" - answer-90 If a lease meets any of the 5 classification criteria it is classified as a ____________ - answer-sales-type lease If a lease does not meet any of the 5 classification and does not meet both criteria under "Additional Lease Classification Criteria for Lessors" then it is classified as a _______ - answer-direct-financing lease Additional Lease Classification Criteria for Lessors - answer-1. The present value of the sum of the lease payments and any residual value guaranteed by the lessee and any other third party unrelated to the lessor equals or exceeds substantially all of the fair value of the underlying asset. 2. It is probable that the lessor will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. Regardless of the lease classification, all leased assets and liabilities are _______ - answer-capitalized __________ will determine how the lease will report how the lessee will report lease-related expenses on the income statement - answer-Lease classification A lease must account for a lease as either a ______ or _____ lease - answer-finance, operating For a finance or operating lease the lesses will recognized a _______ and a ________ - answer-right-of-use asset, lease liability right-of-use asset - answer-an asset representing for the lessee's right to use an identified asset for the lease term lease liability - answer-lessee's obligation to make lease payments arising from a lease at ________ of a lease the right-of-use asset and lease liability are recognized at the PV of the expected future lease payment - answer-the inception The main difference between the finance and operating lease is the pattern in which _____ are recognized over the lease term. - answer-expenses For a finance lease, the lessee recognizes the following - answer- For a finance lease the lease recognized 1._________ on the lease liability using the effective interest rate method 2. _______ on the right-of-use asset (often straight-line) - answer-interest expense, amortization expense For an operating lease, the lessee reports a single lease expense amount on a straight-line basis over the lease term, which is comprised of ___________ and __________. Interest on the lease liability is computed using the effective interest method. - answer-interest and amortization expense ___________ of the right-of-use asset is the difference between the straight-line lease expense and interest expense. (The computations are illustrated in a later section.) Instead of reporting separate expense amounts for these two items, they are combined into a single lease expense. - answer-Amortization Short term lease - answer-a lease for less than 1 year For a short term lease, the lease would recognize lease payments as a(n) _____ over the time of the lease term - answer-expense commencement date - answer-date on which lessor makes the lease asset available for use by the lease Fixed payments less any lease incentives - answer-the fixed payments required under the lease agreement less any incentives to encourage a lessee to sign the lease (e.g., up-front cash payment or rent holiday). Variable lease payments - answer-payments that depend on an index or a rate. At lease inception, the lease payments should include the expected future increases in lease payments due to expected changes in the index or rate. In other leases, payments might vary because of other factors, which are excluded from lease payments bargain purchase price - answer-option that allows the lessee to purchase the asset at a price that is significantly lower than its fair value at the end of the lease guaranteed residual value - answer-a guarantee made by a lessee that the value of the asset returned to the lessor at the end of term would be at least a specified amount