Quiz 2

Question 1

For purpose of recognizing a provision, “probable” is defined as more likely than not

Answer 1

True

Question 2

A provision differs from other liabilities in that there is greater uncertainty about timing and amount of settlement

Answer 2

True

Question 3

Contingent liabilities are not reported in the financial statements but may be disclosed in the notes to the financial statements if the likelihood of an unfavorable outcome is possible.

Answer 3

True

Question 4

Prepaid insurance should be included in the numerator when computing the acid- test (quick) ratio.

Answer 4

False.

Acid Test= (Current Assets- Inventories - Prepaid Expenses)/ Current Liabilities

Question 5

The proceeds of a bond with a face amount of ¥100,000,000 which sells at 98 will be ¥98,000,000.

Answer 5

True

Question 6

Amortization of bond premium reduces the balance in bonds payable.

Answer 6

True.

Premium reduces bonds payable, Discount increases bonds payable

Question 7

A zero-interest-bearing note payable that is issued at a discount will not result in
any interest expense being recognized.

Answer 7

False

Question 8

The semi-annual interest payment on a 6.5% HK$10,000,000 bond is HK$650,000.

Answer 8

False

Question 9

If the market rate is greater than the stated rate, bonds will be sold at a premium.

Answer 9

False

Market Rate> Stated Rate Discount
Market Rate< Stated Rate Premium

Question 10

The interest rate written in the terms of the bond indenture is called the effective
yield or market rate.

Answer 10

False

Question 11

The interest rate written in the terms of the bond indenture is known as the
A. coupon rate only.
B. nominalrateonly.
C. stated rate only.
D. coupon rate, nominal rate, or stated rate.

Answer 11

Coupon Rate, Nominal Rate, Stated Rate

Question 12

The rate of interest actually earned by bondholders is called the
A. stated rate only.
B. yield rate only.
C. effective rate only.
D. effective, yield or market rate.

Answer 12

Effective, Yield, or Market Rate

Question 13

Fox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually.
The bonds are sold to yield 8%. One step in calculating the issue price of the bonds is to multiply the principal by the table value for:
A. 10 periods and 10% from the present value.
B. 20 periods and 5%from the present value.
C. 10 periods and 8% from the present value.
D. 20 periods and 4% from the present value.

Answer 13

20 Periods and 4% from the present value

Question 14

Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that

A. the effective yield or market rate of interest exceeded the stated (nominal) rate.
B. the nominal rate of interest exceeded the market rate.
C. the market and nominal rates coincided.
D. no necessary relationship exists between the two rates.

Answer 14

The nominal rate of interest exceeded the market rate

Question 15

Liabilities are

A. any accounts having credit balances after closing entries are made.
B. deferred credits that are recognized and measured in conformity with
generally accepted accounting principles.
C. obligations to transfer ownership shares to other entities in the future.
D. present obligations arising from past events resulting in an outflow of
resources.

Answer 15

Present obligations arising from past events resulting in an outflow of
resources.

Question 16

Which of the following terms is associated with recognizing a provision?

A. Possible but not probable. B. Likely.
C. Remote.
D. Probable.

Answer 16

D. Probable

Question 17

Hatcher Corporation sold 10,500 dishwashers for $1,100 each during 2015. The dishwashers are under warranty for one year following the sale. Maintenance on the dishwashers during the warranty period averages $90 each.
Actual warranty costs incurred during 2015 for units sold that year were $296,000. The statement of financial position at year end will report a related liability of:

Answer 17

B. $649,000.

Question 18

Vista newspapers sold 4,000 of annual subscriptions at $125 each on September 1. How much unearned revenue will exist as of December 31?

A. $0.
B. $333,333.
C. $166,667.
D. $500,000.

Answer 18

B. $333,333.

Question 19

Seamus Corporation sold 10,500 trash compactors for $550 each during 2015. The trash compactors are under warranty for one year following the sale. Maintenance on the trash compactors during the warranty period averages $45 each. Actual warranty costs incurred during 2015 for units sold that year were $148,000. The statement of financial position at year end will report a related liability of:

A. $148,000.
B. $324,500.
C. $472,500.
D. $515,450.

Answer 19

B. $324,500.

Question 20

Tender Foot Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be $500,000. What is the required journal entry as a result of this litigation?

A. Debit Litigation Expense for $500,000 and credit Litigation liability for $500,000.
B. No journal entry is required.
C. Debit Litigation Expense for $200,000 and credit Litigation Liability for
$200,000.
D. Debit Litigation Expense for $300,000 and credit Litigation Liability for
$300,000.

Answer 20

No journal entry is required