CHOOSE THE CORRECT ANSWER

1. The amortized cost of bonds payable means

a. Face amount minus discount on bonds payable

b. Face amount minus bond issue cost

c. Face amount plus premium on bonds payable

d. Face amount plus premium on bonds payable or minus discount on bonds payable

2. What is the classification of debt callable by the creditor?

a. Current liability if it is probable that the creditor will call the debt within one year

b. Current liability if the creditor intends to call the debt within one year

c. Noncurrent liability

d. Current liability

An entity had a note payable due next year. After the end of reporting period and before the issuance of the current year financial statements, the entity issued long-term bonds payable. Proceeds from the bonds were used to repay the note when due.

3. How should the entity classify the note payable at current year-end?

a. Current liability with separate disclosure of the note refinancing

b. Noncurrent liability with no separate disclosure required

c. Noncurrent liability with separate disclosure of the note refinancing

d. Current liability with no disclosure required

4. Magazine subscription collected in advance should be accounted for as

a. Deferred revenue in the liability section

b. A contra account to magazine subscription receivable

c. Magazine subscription revenue in the income statement in the period collected

d. Deferred revenue in the shareholders' equity section

5. If a long-term debt becomes callable due to the violation of a loan covenant

a. Cash must be reserved to pay the debt

b. The debt should be reclassified as current

c. Retained earnings must be restricted

d. The debt may continue to be classified as noncurrent

6. Which statement is true about the fair value option for measuring bonds payable?

a. Discount or premium is disclosed in the notes to the financial statements

b. The effective interest method of amortization must be used to calculate interest expense

c. The fair value of the bond and the principal obligation value must be disclosed

d. If the fair value is elected, it must be applied to all bonds

7. Bonds issued with a scheduled maturities at various dates are called

a. Serial bonds

b. Convertible bonds

c. Term bonds

d. Callable bonds

8. Which of the following best describes the accrual approach of the accounting for warranty cost?

a. Expensed when incurred

b. Expensed when paid

c. Expensed based on estimate in year of sale

d. Expensed when warranty claims are retained

9. At year-end, an entity classified a note payable as current liability. Under what condition could the entity reclassify the note payable from current to noncurrent?

a. If the entity has the intent and ability to reclassify the note before the end of reporting period

b. If the entity has the intent and ability to reclassify the note before the issuance of the financial statements

c. If the entity has executed an arrangement to refinance the note before the end of reporting period

d. If the entity has executed an arrangement to refinance the note before issuance of the financial statements

10. What is the interest rate written on the face of the bond?

a. Nominal rate

b. Stated rate

c. Coupon rate

d. Coupon rate, nominal rate or stated rate

11. What is the rate of interest actually incurred?

a. Market rate

b. Effective rate

c. Yield rate

d. Market, yield or effective rate

12. What is the relationship between present value and liability?

a. Present value is used to measure certain liabilities

b. Present value is used to measure current liabilities

c. Present value is not used to measure liabilities

d. Present value is used to measure all liabilities

13. When entity issued a note solely in exchange for cash, the present value of the note at issuance is equal to

a. Proceeds received

b. Face amount discounted at the prevailing interest rate

c. Face amount

d. Proceeds received discounted at the prevailing interest rate

14. Bonds payable should be reported as noncurrent at

a. Face amount less any unamortized premium or plus any unamortized discount

b. Face amount less any unamortized discount or plus any unamortized premium

c. Face amount less accrued interest since the last interest payment date

d. Current market price

15. Bonds that mature on a single date are called

a. Term bonds

b. Convertible bonds

c. Callable bonds

d. Serial bonds

16. An entity received an advance payment for special order goods that are to be manufactured and delivered within six months. How would the advance payment be reported?

a. Noncurrent liability

b. Contra asset account

c. Current liability

d. Deferred charge

17. After initial recognition, bonds payable shall be measured at

a. Amortized cost using the effective interest method

b. Amortized cost using the effective interest method or fair value through other comprehensive income

c. Amortized cost using the effective interest method or fair value through profit or loss by irrevocable designation

d. Fair value through profit or loss by irrevocable designation

18. Bonds payable not designated at a fair value through profit lossshall be measured initially at

a. Fair value minus bond issue cost

b. Fair value

c. Fair value plus bond issue cost

d. Face amount

19. At issuance date, the present value of a promissory note is equal to the face amount if the note

a. Bears a stated rate of interest which is realistic

b. Is noninterest bearing and the implicit interest rate is less than the prevailing market rare for similar notes

c. Is noninterest bearing and the implicit interest rate is equal to the prevailing market rate for similar notes

d. Bears a stated rate of interest which is less than the prevailing market rate for similar notes

20. An entity has a loan due for repayment in six months' time, but the entity has the option to refinance for repayment two years later. The entity plans to refinance this loan.

In which section of the statement of financial position should this loan be presented?

a. Current liability

b. Noncurrent liability

c. Noncurrent asset

d. Current asset

CHOOSE THE CORRECT ANSWER

1. Which of the following would not affect retained earnings?

a. Share split

b. Share dividend

c. Treasury share transaction

d. Conversion of preference share into ordinary share

2. If treasury shares are reissued for noncash consideration, the proceeds shall be measured by

a. Fair value of the noncash consideration

b. Fair value of the treasury shares

c. Carrying amount of the noncash consideration

d. Carrying amount of the treasury shares

3. The total retained earnings balance is not affected by

a. Restrictions

b. A prior period error

c. Dividends paid

d. Net income

4. The purchase of treasury ordinary shares

a. Decreases outstanding ordinary shares

b. Decreases authorized ordinary shares capital

c. Has no effect on ordinary shares outstanding

d. Decreases issued ordinary shares

5. An appropriation of retained earnings for future plant expansion will result in

a. The disclosure that management does not intend to distribute in the form of dividends assets equal to the amount of the appropriation

b. A decrease in cash with an equal increase in the investment in fund

c. The setting aside of a cash to be used for future plant expansion

d. The establishment of a fund to help finance future plant expansion

6. The declaration and issuance of a share dividend

a. Decreases total shareholders' equity

b. Has no effect on assets, liabilities and total shareholders' equity

c. Decreases assets and total shareholders' equity

d. Does not change retained earnings

7. The total cost of treasury shares shall be reported as

a. Financial asset

b. Deduction from shareholders' equity

c. Deduction from retained earnings

d. Deduction from share premium

8. Which statement is true concerning appropriations retained earnings?

a. The only proper way to eliminate an appropriation of retained after is has served its purpose is to revert to the unappropriated retained earnings.

b. All of these statements are true concerning appropriations of retained earnings.

c. When treasury shares are purchased, retained earnings must be appropriated equal to the cost of the treasury shares.

d. Appropriations do not reduce total retained earnings.

9. Shares issued exceed shares outstanding as a result of

a. Purchase of treasury shares

b. Declaration of share split

c. Declaration of share dividend

d. Payment in full of subscribed shares

10. When a share dividend is declared

a. Total shareholders' equity does not change

b. Total shareholders' equity decreases

c. The amount of working capital

d. The current ratio increases

11. Share premium is reported

a. As a noncurrent liability

b. As an increase in shareholders' equity

c. As a noncurrent asset

d. As a reduction of shareholders' equity

12. When an entity calls in all of the preference shares for more than the original issue price, the excess over the original issue price should be

a. Charged to a discount on preference share

b. Charged against share premium of ordinary shares

c. Accounted for as loss on exchange

d. Charged against retained earnings

13. When preference shares are called in by the issuer for less than original issue price, proper accounting for the redemption

a. Increases the treasury shares held by the entity

b. Increases the contributed capital of the ordinary shareholders

c. Increases the amount of dividends available to ordinary shareholders

d. Increases reported income for the period

14. Total shareholders' equity represents

a. Only the amount of retained earnings

b. A claim against specific assets

c. A claim against the total assets of an entity

d. The maximum amount that can be borrowed

15. Which statement is incorrect concerning appropriations of retained earnings?

a. Appropriations of retained earnings reflect funds set aside for a designated purpose, such as plant expansion

b. Appropriations of retained earnings do not change the total amount of shareholders' equity

c. Appropriations of retained earnings can be made at the discretion of the board of directors

d. Appropriations of retained earnings can be made as a result of a contractual requirements

16. Retained earnings represent

a. Net assets

b. Assets

c. Cash

d. Earned capital

17. Which is incorrect in relation to treasury shares?

a. Treasury shares shall be recorded at cost

b. The total cost of treasury shares shall be deducted from shareholders' equity

c. Treasury shares may be recognized as a financial asset

d. Gain on sale of treasury shares is not recognized as income

18. Contributed capital does not include

a. Retained earnings

b. Share premium from issuance of treasury shares

c. Preference share capital

d. Share premium on ordinary and preference shares

19. A retained earnings appropriation is used to

a. Restrict earnings available for dividends

b. Absorb a fire loss when an entity is self-insured

c. Provide for a contingent loss that is probable and measurable

d. Smooth periodic income

20. In accounting for shareholders' equity, the accountant is primarily concerned with which of the following?

a. Making sure that the directors do not declare dividends in excess of retained earnings

b. Determining the total amount of shareholders' equity

c. Recording the source of each of the various elements of shareholders' equity

d. Distinguishing between realized and unrealized revenue