ACC 311 Exam 1 Questions With
Correct Answers Already Passed!!!
When the market value of a company's portfolio of available-for-sale securities is lower
than its cost, the difference should be:
a.accounted for as an addition in the shareholders' equity section of the balance sheet.
b.accounted for as a valuation allowance deducted from the asset to which it relates.
c.disclosed and described in a note to the financial statements but not accounted for.
d.accounted for as a liability.
Feedback Area CORRECT ANSWERS b.accounted for as a valuation allowance
deducted from the asset to which it relates.
On January 1, 2019, Park Company accepted a $36,000, non-interest-bearing, 3-year
note from a major customer in exchange for used equipment. The equipment had
originally cost Park $200,000 and had a book value of $20,000 on the date of the sale.
At the 12% imputed interest rate for this type of loan, the present value of the note is
$25,500 on January 1, 2019. Park uses the effective interest rate.
What is the carrying value of the note receivable on Park's December 31, 2019,
balance sheet?
a.$29,000
b.$36,000
c.$28,560
d.$32,500 CORRECT ANSWERS c. $28,560
On September 30, Franz Corporation notices a decline in value of its investment in
held-to-maturity bonds. On that date, the carrying value of the bonds is $38,500 and the
fair value is $22,980. Franz evaluation of this investment reveals that expected credit
losses are $10,000. CORRECT ANSWERS Credit Loss Expense. 10,000
Allowance for Credit Losses. 10,000
Should legal fees and underwriting costs associated with issuing bonds be expensed as
incurred?
a.Legal Fees. No. Underwriting Costs. Yes
b.Legal Fees. Yes. Underwriting Costs. No
c.Legal Fees. No. Underwriting Costs No
d.Legal Fees. Yes Underwriting Costs. Yes CORRECT ANSWERS c.Legal Fees. No.
Underwriting Costs No
On April 1, 2019, Granville Corporation issued, at 98 plus accrued interest, 400 of its
10%, $1,000 bonds. The bonds are dated January 1, 2019, and mature on December
31, 2025. Interest is payable semiannually on June 30 and December 31. From the
bond issuance, Granville would realize net cash receipts of:
a.$397,000
, b.$382,000
c.$392,000
d.$402,000 CORRECT ANSWERS d.$402,000
Explanation:
A bond's price is often stated as a percentage of face value. When a company sells
bonds between interest dates, the company normally will collect from the investors both
the selling price and the interest accrued on the bonds from the interest payment date
prior to the date of sale.
When the interest payment dates of a bond are May 1 and November 1, and a bond
issue is sold on June 1, the amount of cash received by the issuer will be:
a.decreased by accrued interest from June 1 to November 1.
b.increased by accrued interest from May 1 to June 1.
c.decreased by accrued interest from May 1 to June 1.
d.increased by accrued interest from June 1 to November 1. CORRECT ANSWERS
b.increased by accrued interest from May 1 to June 1.
For the issuer of a 10-year term bond, the amount of amortization using the effective
interest method would increase each year if the bond was sold at a:
a.Discount. Yes Premium. No
b.Discount. No Premium. No
c.Discount. No Premium. Yes
d.Discount Yes. Premium. Yes CORRECT ANSWERS d.Discount Yes. Premium. Yes
Explanation: The discount or premium amortization under the effective interest method
is the difference between the interest expense computed and the cash payment.
On January 1, 2019, when the market rate for bond interest was 14%, Lenoir
Corporation issued bonds in the face amount of $500,000 with interest at 12% payable
semiannually. The bonds mature on December 31, 2026, and were issued at a discount
of $53,180. How much of the discount should be amortized by the effective interest
method at July 1, 2019?
a.$3,723
b.$1,277
c.$2,659
d.$3,191 CORRECT ANSWERS b.$1,277
When the issuer of bonds exercises the call provision to retire the bonds, the excess of
the cash paid over the carrying amount of the bonds should be recognized separately
as a(n):
a.prior period adjustment
Correct Answers Already Passed!!!
When the market value of a company's portfolio of available-for-sale securities is lower
than its cost, the difference should be:
a.accounted for as an addition in the shareholders' equity section of the balance sheet.
b.accounted for as a valuation allowance deducted from the asset to which it relates.
c.disclosed and described in a note to the financial statements but not accounted for.
d.accounted for as a liability.
Feedback Area CORRECT ANSWERS b.accounted for as a valuation allowance
deducted from the asset to which it relates.
On January 1, 2019, Park Company accepted a $36,000, non-interest-bearing, 3-year
note from a major customer in exchange for used equipment. The equipment had
originally cost Park $200,000 and had a book value of $20,000 on the date of the sale.
At the 12% imputed interest rate for this type of loan, the present value of the note is
$25,500 on January 1, 2019. Park uses the effective interest rate.
What is the carrying value of the note receivable on Park's December 31, 2019,
balance sheet?
a.$29,000
b.$36,000
c.$28,560
d.$32,500 CORRECT ANSWERS c. $28,560
On September 30, Franz Corporation notices a decline in value of its investment in
held-to-maturity bonds. On that date, the carrying value of the bonds is $38,500 and the
fair value is $22,980. Franz evaluation of this investment reveals that expected credit
losses are $10,000. CORRECT ANSWERS Credit Loss Expense. 10,000
Allowance for Credit Losses. 10,000
Should legal fees and underwriting costs associated with issuing bonds be expensed as
incurred?
a.Legal Fees. No. Underwriting Costs. Yes
b.Legal Fees. Yes. Underwriting Costs. No
c.Legal Fees. No. Underwriting Costs No
d.Legal Fees. Yes Underwriting Costs. Yes CORRECT ANSWERS c.Legal Fees. No.
Underwriting Costs No
On April 1, 2019, Granville Corporation issued, at 98 plus accrued interest, 400 of its
10%, $1,000 bonds. The bonds are dated January 1, 2019, and mature on December
31, 2025. Interest is payable semiannually on June 30 and December 31. From the
bond issuance, Granville would realize net cash receipts of:
a.$397,000
, b.$382,000
c.$392,000
d.$402,000 CORRECT ANSWERS d.$402,000
Explanation:
A bond's price is often stated as a percentage of face value. When a company sells
bonds between interest dates, the company normally will collect from the investors both
the selling price and the interest accrued on the bonds from the interest payment date
prior to the date of sale.
When the interest payment dates of a bond are May 1 and November 1, and a bond
issue is sold on June 1, the amount of cash received by the issuer will be:
a.decreased by accrued interest from June 1 to November 1.
b.increased by accrued interest from May 1 to June 1.
c.decreased by accrued interest from May 1 to June 1.
d.increased by accrued interest from June 1 to November 1. CORRECT ANSWERS
b.increased by accrued interest from May 1 to June 1.
For the issuer of a 10-year term bond, the amount of amortization using the effective
interest method would increase each year if the bond was sold at a:
a.Discount. Yes Premium. No
b.Discount. No Premium. No
c.Discount. No Premium. Yes
d.Discount Yes. Premium. Yes CORRECT ANSWERS d.Discount Yes. Premium. Yes
Explanation: The discount or premium amortization under the effective interest method
is the difference between the interest expense computed and the cash payment.
On January 1, 2019, when the market rate for bond interest was 14%, Lenoir
Corporation issued bonds in the face amount of $500,000 with interest at 12% payable
semiannually. The bonds mature on December 31, 2026, and were issued at a discount
of $53,180. How much of the discount should be amortized by the effective interest
method at July 1, 2019?
a.$3,723
b.$1,277
c.$2,659
d.$3,191 CORRECT ANSWERS b.$1,277
When the issuer of bonds exercises the call provision to retire the bonds, the excess of
the cash paid over the carrying amount of the bonds should be recognized separately
as a(n):
a.prior period adjustment
