Question
1. Consider the following: A company issued $10,000,000 in bonds on January 1, 2011. The terms are: 10 year with interest paid semiannually. Refer to
1. Consider the following: A company issued $10,000,000 in bonds on January 1, 2011.
The terms are: 10 year with interest paid semiannually. Refer to the following schedule.
Payment Cash Effective Interest Decrease in Balance Outstanding
Balance
11,487,747
1 400,000 344,632 55,368 11,432,379
2 400,000 342,971 57,029 11,375,350
3 400,000 341,261 58,739 11,316,611
What is the interest expense on the bonds in 2012?
a. 800,000
b. 680,759
c. 342,961
d. none of the above
2. Buckeye Corporation adopted dollar-value LIFO on January 1, 2011, when the
inventory value was $500,000 and the cost index was 1.0. On December 31, 2011, the
inventory value at year-end costs was $535,000 and the cost index was 1.06. Buckeye
would report a LIFO inventory of
a. 504,717
b. 530,000
c. 505,000
d. 533,019
3. Revenue associated with gift card sales should be recognized:
a. When the gift card is sold
b. No later than the last day of the operating period in which the gift card is delivered to
the customer
c. When the probability of gift card redemption is viewed as remote
d. Under no circumstances, as gift cards are not themselves a delivered product, but
rather a selling technique
4. In a period when costs are falling and inventory quantities are stable, the lowest
taxable income would be reported by using the inventory method of:
a. Weighted average
b. Moving average
c. LIFO
d. FIFO
5. When bonds are retired prior to their maturity date:
a. GAAP has been violated
b. The issuing company probably will report an ordinary gain or loss
c. The issuing company probably will report an extraordinary gain or loss
d. The purchasing company will report a non-operating gain or loss
6. The acquisition costs of property, plant, and equipment do NOT include:
a. The ordinary and necessary costs to bring the asset to its desired condition and location
for use
b. The net invoice price
c. Legal fees, delivery charges, installation, and any applicable sales tax
d. Maintenance costs during the first 30 days of use
7. Nontrade receivables do not include:
a. Sales to customers
b. Loans to employees
c. Income tax refund receivable
d. Advances to affiliated companies
8. On March 31, 2011, MDS, Inc.'s bondholders exchanged their convertible bonds for
common stock. The carrying amount of these bonds on Ashley's books was less than the
fair value but greater than the par value of the common stock issued. If Ashley used the
book value method of accounting for the conversion, which of the following statements
correctly states an effect of this conversion?
a. Shareholders equity is increased
b. Additional-paid-in-capital is decreased
c. Retained earnings is increased
d. An extraordinary loss is recognized
9. Eagle Company issued ten-year bonds at 96 during the current year. In the year-end
financial statements, the discount should be:
a. Added to bonds payable
b. Included as an expense in the year of issue
c. Deducted from bonds payable
d. Reported as a deferred charge
10. Interest is NOT capitalized for:
a. Assets that are constructed as discrete projects for sale or lease
b. Assets constructed for a company
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