Multiple Choice Questions
1. Which of the following types of share-based payment (SBP) transactions always results in the recognition of a liability?
a. Equity-settled SBP transaction with employees.
b. Equity-settled SBP transaction with nonemployees.
c. Cash-settled SBP transaction with employees.
d. Choice-of-settlement SBP transaction in which the entity chooses the form of settlement.
2. Sandoval Company operates in a country in which distributed profits are taxed at 25 percent and undistributed profits are taxed at 30 percent. In Year 1, Sandoval generated pre-tax profit of $100,000 and paid $20,000 in dividends from its Year 1 earnings. In Year 2, Sandoval generated pre-tax profit of $120,000 and paid dividends of $40,000 from its Year 1 earnings. What amounts should Sandoval recognize as current tax expense in Years 1 and 2, respectively?
a. $29,000 and $34,000.
b. $30,000 and $34,000.
c. $25,000 and $30,000.
d. $30,000 and $36,000.
3. Which of the following is not a criterion that must be met to recognize revenue from the sale of goods?
a. The amount of revenue can be measured reliably.
b. The significant risks and rewards of ownership of the goods have been transferred to the buyer.
c. The costs incurred or to be incurred with respect to the sale of the goods can be measured reliably.
d. It is certain that the economic benefits associated with the sale will flow to the seller.
4. Manometer Company sells accounts receivable of $10,000 to Eck Bank for $9,000 in cash. The sale does not qualify for derecognition of a financial asset. As a result, Manometer's balance sheet will be different in which of the following ways?
a. $1,000 more in assets than under derecognition.
b. $9,000 more in assets than under derecognition.
c. $9,000 more in liabilities than under derecognition.
d. $10,000 less in equity than under derecognition.
5. Sinto Bern Company issues a two-year note paying 5 percent interest on January 1, Year 1. The note sells for its par value of $1,000,000, and the company incurs issuance costs of $22,000. Which of the following amounts best approximates the amount of interest expense Sinto Bern will recognize in Year 1 related to this note?
a. $48,900.
b. $50,000.
c. $58,680.
d. $60,670.
6. Costs incurred to accomplish a less- than-substantial debt modification, such as an interest rate adjustment, are treated in which of the following ways?
a. Expensed immediately.
b. Increase the carrying amount of the debt that has been modified.
c. Decrease the carrying amount of the debt that has been modified.
d. Decrease the gain on the debt modification.
7. On December 31, Year 1, Airways Corp. issued $1 million in bonds at 5 percent annual interest, due December 31, Year 6, at a discount of $100,000. Airways incurred bank fees of $100,000, legal fees of $50,000, and salaries of $25,000 for its employees in conjunction with issuing the bonds. What is the original carrying amount for these bonds?
a. $725,000.
b. $750,000.
c. $850,000.
d. $900,000.