Multiple Choice

1. The treasury stock method of computing incremental shares applies to:

a. stock options and warrants.

b. all convertible securities.

c. convertible bonds only.

d. convertible preferred stock only.

2. The issuance of warrants arises under all of the following situations except to:

a. provide compensation to executives.

b. make different types of securities more attractive to newinvestors.

c. give bondholders the preemptive right to purchase additional stock.

d. give existing stockholders a preemptive right to purchase stock.

3. Proceeds from an issue of debt securities having stock warrants should not be allocated between debt and equity features when

a. the allocation would result in a discount on the debt security.

b. exercise of the warrants within the next few fiscal periods seems remote.

c. the warrants issued with the debt securities are nondetachable.

d. the market value of the warrants is not readily available.

4. The major difference between convertible debt and stock warrants is that upon exercise of the warrants

a. the stock is held by the company for a defined period of time before they are issued to the warrant holder.

b. no paid-in capital in excess of par can be a part of the transaction.

c. the stock involved is restricted and can only be sold by the recipient after a set periodof time.

d. the holder has to pay a certain amount of cash to obtain the shares.

5. Compensation expense resulting from a compensatory stock option plan is generally

a. allocated to the periods benefited by the employee's required service.

b. recognized in the period of exercise.

c. allocated over the periods of the employee's service life to retirement.

d. recognized in the period of the grant.

6. Which of the following does the FASB argue indicates a more realistic measure of the employer's obligation under the pension plan on a going-concern basis and should be used as the basis for determining servicecost?

a. Projected benefit obligation.

b. Accumulated benefit obligation.

c. Vested benefit obligation.

d. None of these answers are correct.

7. Which of the following is not a characteristic of a defined-contribution pension plan?

a. The benefit of gain or the risk of loss from the assets contributed to the pension fundis borne by the employee.

b. The accounting for a defined-contribution plan is straightforward and uncomplicated.

c. The employer's contribution each period is based on a formula.

d. The benefits to be received by employees are determined by an employee's highest compensation level defined by the terms of the plan.

8. Interest cost included in pension expense recognized for a period by an employer sponsoring a defined-benefit pension plan represents the

a. shortage between the expected and actual returns on plan assets.

b. amortization of the discount on accumulated OCI (PSC).

c. increase in the projected benefit obligation due to the passage of time.

d. increase in the fair value of plan assets due to the passage of time.

9. Which of the following is an advantage of captive leasing companies over the other players in the leasing market?

a. They have access to low-cost funds allowing them to purchase assets at lower cost.

b. They are good at developing innovative contracts that help avoid accounting problems.

c. They have the point-of-sale advantage in finding leasing customers.

d. They provide leasing arrangements for a wider range of products than the parent company's product line.

10. A single lease expense is recognized on the income statement for

a. an operating lease.

b. neither a finance lease or an operating lease.

c. a finance lease.

d. both a finance lease and an operating lease.

11. In a lease that is recorded as a sales-type lease by the lessor, interest revenue

a. should be recognized over the period of the lease using the effective interestmethod.

b. should be recognized over the period of the lease using the straight-linemethod.

c. does not arise.

d. should be recognized in full as revenue at the lease's inception.

12. The unrecognized net gain or loss balance must be amortized when it exceeds 10% of the larger of the:

a. beginning accumulated benefit obligation or the market-related asset value.

b. ending accumulated benefit obligation or the market-related asset value.

c. ending projected benefit obligation or the market related asset value.

d. beginning projected benefit obligation or the market-related asset value.

13. In computing the present value of the lease payments, the lessee should

a. use the implicit rate in all cases.

b. use both its incremental borrowing rate and the implicit rate of the lessor, assuming that the implicit rate is known to the lessee.

c. use the implicit rate of the lessor, assuming that the implicit rate is known to the lessee.

d. use its incremental borrowing rate in all cases.

14. Which of the following best describes current practice in accounting for leases?

a. Leases similar to installment purchases are capitalized.

b. All long-term leases are capitalized.

c. Leases are not capitalized.

d. All leases are capitalized.

15. According to the FASB, recognition of a liability is required when the projected benefit obligation exceeds the fair value of plan assets. Conversely, when the fair value of plan assets exceeds the projected benefit obligation, the Board

a. requires recognition of an asset if the excess fair value of plan assets exceeds the corridor amount.

b. requires recognition of an asset.

c. does not permit recognition of an asset.

d. recommends recognition of an asset but does not require such recognition.