Strayer University ACC 206 Final Exam (pdf) | 2026/2027 |
Accounting II Q&A | Accounting
1. When bonds are sold at a discount and the effective interest method is
used, at each subsequent interest payment date, which of the following is
true?
A) The cash paid for interest is less than the effective interest expense
B) The cash paid for interest is equal to the effective interest expense
C) The cash paid for interest is more than if the bonds had been sold at a
premium
D) The cash paid for interest is more than the effective interest expense
Correct Answer: The cash paid for interest is less than the effective interest
expense
Rationale: When bonds are issued at a discount, the effective interest
expense is greater than the cash interest paid. The difference between the
cash interest payment and the interest expense is the amortization of the
discount . For a discount bond, the carrying amount increases over time, so
the effective interest expense is larger than the cash payment.
2. When bonds are sold at a premium and the effective interest method is
used, at each subsequent interest payment date, which of the following is
true?
A) The cash paid for interest is more than the effective interest expense
B) The cash paid for interest is equal to the effective interest expense
C) The cash paid for interest is less than the effective interest expense
D) The cash paid for interest is less than if the bonds had been sold at a
discount
Correct Answer: The cash paid for interest is more than the effective interest
expense
,Rationale: When bonds are issued at a premium, the effective interest
expense is less than the cash interest paid . The difference between the cash
interest payment and the interest expense is the amortization of the
premium. As the premium is amortized, the carrying amount decreases
toward face value.
3. How would the carrying amount of bonds payable be affected by the
amortization of the bond premium and bond discount respectively?
A) The amortization of the bond premium has no effect on the carrying
amount but the amortization of the bond discount increases the carrying
amount
B) The amortization of the bond premium decreases the carrying amount but
the amortization of the bond discount increases the carrying amount
C) The amortization of the bond premium increases the carrying amount but
the amortization of the bond discount decreases the carrying amount
D) The amortization of the bond premium and bond discount both have no
effect on the carrying amount
Correct Answer: The amortization of the bond premium decreases the
carrying amount but the amortization of the bond discount increases the
carrying amount
Rationale: Premium amortization reduces the carrying amount of the bond
liability, bringing it closer to face value at maturity. Discount amortization
increases the carrying amount, also bringing it to face value at maturity .
This is because the effective interest method allocates interest expense so
that the carrying amount approaches face value over the life of the bond.
4. Which of the following is true of a $1 million bond issue sold at 102?
A) Sold at a discount because the effective interest rate was lower than the
coupon rate
,B) Sold at a premium because the coupon interest rate was higher than the
effective interest rate
C) Sold at a discount because the coupon interest rate was lower than the
effective interest rate
D) Sold at a premium because the coupon interest rate was lower than the
effective interest rate
Correct Answer: Sold at a premium because the coupon interest rate was
higher than the effective interest rate
Rationale: A bond issued at 102 means it sold for 102% of face value
($1,020,000), representing a premium . Bonds sell at a premium when the
stated (coupon) interest rate is higher than the effective (market) interest
rate. Investors are willing to pay more than face value to receive higher
interest payments.
5. Under FRS 37 Provisions, Contingent Liabilities and Contingent Assets, if
the likelihood of expropriation is probable, this should be:
A) Accrued as a provision but not disclosed
B) Disclosed but not accrued as a provision
C) Disclosed and accrued as a provision
D) Neither accrued as a provision nor disclosed
Correct Answer: Disclosed and accrued as a provision
Rationale: When a loss is probable and can be reasonably estimated, it
should be recognized as a provision (accrued) and also disclosed . Both
recognition and disclosure are required. This applies to situations like
probable expropriation losses where the amount can be estimated.
, 6. Under FRS 37 Provisions, Contingent Liabilities and Contingent Assets, if
the likelihood of expropriation is possible, this should be:
A) Accrued as a provision but not disclosed
B) Disclosed but not accrued as a provision
C) Disclosed and accrued as a provision
D) Neither accrued as a provision nor disclosed
Correct Answer: Disclosed but not accrued as a provision
Rationale: When a loss is possible but not probable, it should be disclosed
but not accrued . Disclosure informs users about potential risks without
recognizing a liability. This reflects the principle that liabilities should only be
recognized when there is a present obligation.
7. Under FRS 37 Provisions, Contingent Liabilities and Contingent Assets, if
the likelihood of expropriation is remote, this should be:
A) Disclosed but not accrued as a provision
B) Disclosed and accrued as a provision
C) Accrued as a provision but not disclosed
D) Neither accrued as a provision nor disclosed
Correct Answer: Neither accrued as a provision nor disclosed
Rationale: When a loss is remote, no accrual or disclosure is required .
Remote possibilities are not considered significant enough to warrant
disclosure. A loss contingency is considered remote when the chance of
occurrence is slight.
Accounting II Q&A | Accounting
1. When bonds are sold at a discount and the effective interest method is
used, at each subsequent interest payment date, which of the following is
true?
A) The cash paid for interest is less than the effective interest expense
B) The cash paid for interest is equal to the effective interest expense
C) The cash paid for interest is more than if the bonds had been sold at a
premium
D) The cash paid for interest is more than the effective interest expense
Correct Answer: The cash paid for interest is less than the effective interest
expense
Rationale: When bonds are issued at a discount, the effective interest
expense is greater than the cash interest paid. The difference between the
cash interest payment and the interest expense is the amortization of the
discount . For a discount bond, the carrying amount increases over time, so
the effective interest expense is larger than the cash payment.
2. When bonds are sold at a premium and the effective interest method is
used, at each subsequent interest payment date, which of the following is
true?
A) The cash paid for interest is more than the effective interest expense
B) The cash paid for interest is equal to the effective interest expense
C) The cash paid for interest is less than the effective interest expense
D) The cash paid for interest is less than if the bonds had been sold at a
discount
Correct Answer: The cash paid for interest is more than the effective interest
expense
,Rationale: When bonds are issued at a premium, the effective interest
expense is less than the cash interest paid . The difference between the cash
interest payment and the interest expense is the amortization of the
premium. As the premium is amortized, the carrying amount decreases
toward face value.
3. How would the carrying amount of bonds payable be affected by the
amortization of the bond premium and bond discount respectively?
A) The amortization of the bond premium has no effect on the carrying
amount but the amortization of the bond discount increases the carrying
amount
B) The amortization of the bond premium decreases the carrying amount but
the amortization of the bond discount increases the carrying amount
C) The amortization of the bond premium increases the carrying amount but
the amortization of the bond discount decreases the carrying amount
D) The amortization of the bond premium and bond discount both have no
effect on the carrying amount
Correct Answer: The amortization of the bond premium decreases the
carrying amount but the amortization of the bond discount increases the
carrying amount
Rationale: Premium amortization reduces the carrying amount of the bond
liability, bringing it closer to face value at maturity. Discount amortization
increases the carrying amount, also bringing it to face value at maturity .
This is because the effective interest method allocates interest expense so
that the carrying amount approaches face value over the life of the bond.
4. Which of the following is true of a $1 million bond issue sold at 102?
A) Sold at a discount because the effective interest rate was lower than the
coupon rate
,B) Sold at a premium because the coupon interest rate was higher than the
effective interest rate
C) Sold at a discount because the coupon interest rate was lower than the
effective interest rate
D) Sold at a premium because the coupon interest rate was lower than the
effective interest rate
Correct Answer: Sold at a premium because the coupon interest rate was
higher than the effective interest rate
Rationale: A bond issued at 102 means it sold for 102% of face value
($1,020,000), representing a premium . Bonds sell at a premium when the
stated (coupon) interest rate is higher than the effective (market) interest
rate. Investors are willing to pay more than face value to receive higher
interest payments.
5. Under FRS 37 Provisions, Contingent Liabilities and Contingent Assets, if
the likelihood of expropriation is probable, this should be:
A) Accrued as a provision but not disclosed
B) Disclosed but not accrued as a provision
C) Disclosed and accrued as a provision
D) Neither accrued as a provision nor disclosed
Correct Answer: Disclosed and accrued as a provision
Rationale: When a loss is probable and can be reasonably estimated, it
should be recognized as a provision (accrued) and also disclosed . Both
recognition and disclosure are required. This applies to situations like
probable expropriation losses where the amount can be estimated.
, 6. Under FRS 37 Provisions, Contingent Liabilities and Contingent Assets, if
the likelihood of expropriation is possible, this should be:
A) Accrued as a provision but not disclosed
B) Disclosed but not accrued as a provision
C) Disclosed and accrued as a provision
D) Neither accrued as a provision nor disclosed
Correct Answer: Disclosed but not accrued as a provision
Rationale: When a loss is possible but not probable, it should be disclosed
but not accrued . Disclosure informs users about potential risks without
recognizing a liability. This reflects the principle that liabilities should only be
recognized when there is a present obligation.
7. Under FRS 37 Provisions, Contingent Liabilities and Contingent Assets, if
the likelihood of expropriation is remote, this should be:
A) Disclosed but not accrued as a provision
B) Disclosed and accrued as a provision
C) Accrued as a provision but not disclosed
D) Neither accrued as a provision nor disclosed
Correct Answer: Neither accrued as a provision nor disclosed
Rationale: When a loss is remote, no accrual or disclosure is required .
Remote possibilities are not considered significant enough to warrant
disclosure. A loss contingency is considered remote when the chance of
occurrence is slight.
