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1. Bonds are issued on June 1 that have interest iJ

1. Bonds are issued on June 1 that have interest iJ<ayment dates of April 1 and October 1. Bond interest expense for the year ended December 31, 2009, is for a period of.

0 A) Seven months.

0 B) Three months.

0 C) Six months.

0 D) Four months.

2. Of the four criteria for a capital lease, the one most often is the decisive criteria is:

0 A) The 90% of fair value test.

0 B) The bargain purchase option.

0 C) The 75% of economic life test.

0 D) The transfer of title.

3. Which of the fo llowing does not represent a cash flow relating to operating activities?

0 A) Cash paid for salaries

0 B) Cash received from customers

0 C) Cash dividends paid to stockholders

0 D) Interest paid to bondholders

4. For a typical manufacturing company, the most common critical point for recognizing revenue is the date:

0 A) The product is delivered.

0 B) An order is received.

0 C) Payment is received.

0 D) Production is completed.


5. The interest expense is for the time the bonds were outstanding during the reporting period – 7 m-0nths in this case.

A $500,000 bond issue sold for 98. Therefore, the bonds:

0 A) Sold at a discount because the effective interest rate was lower than the face rate.

0 B) Sold at a premium because th;e stated rate of interest was higher than the yield rate.

0 C) Sold for the $500,000 face amount less $10,000 of accrued interest.

0 D) Sold at a discount because the stated rate of interest was lower than the effective rate.


6. Which of the fo llowing statements characterizes a leveraged lease?

0 A) The lessor treats the lease as an operating lease.

0 B) The lesso(s interest rate is always higher because the lease is leveraged.

0 C) The lessee makes lease payments to the lessor’s lender.

0 D) The lessor borrows part of the acquisition price of the leased asset from a third party lender.


7. Straight-line amortization of bond discount or premium:

0 A) Provides the same amount of interest expense each period as does the effective interest method.

0 B) Provides the same total amount of interest expense over the life of the bond issue as does the effective interest method.

0 C) Is appropriate for deep discount bonds.

0 D) Can be used for amortization -0f discount or premium in all cases and circumstances.

Assessment: 0 1: 14:25


8. Wilson Inc. developed a business strategy that uses stock options as a major compensation incentive for its top executives. On January 1, 2009, 20 million options were granted, each giving the executive owning them the right to

acquire five $1 par common shares. The exercise price is the market price on the grant date-$10 per share. Options vest on January 1, 2013. They cannot be exercised before that date and will expire on December 31, 201 5.

The fair value of the 20 million options, estimated by an appropriate option pricing model, is $40 per option.

On March 1, 2013, when the market price of Wilson’s stock was $14 per share, 3 million of the options were exercised. The journal entry to record this would rnclude:

0 A) A credit to paid-in capital – excess of par for $255 million

0 B) A credit to common stock for $75 million

0 C) All of these are correct.

0 D) A debit to paid-in capital – stock options for $42 million.

9. Which of the fo llowing is not among the criteria for classifying a lease as a capital lease?

0 A) The agreement contains a bargain purchase option.

0 B) The present value of the minimum lease payments is equal to or greater than 90% of the fair value of the asset.

0 C) The agreement specifies that ownership of the asset transfers to the lessee.

0 D) The noncancelable lease term is equal to 90% or more of the expected economic life of the asset.

10. An options contract to hedge possible future price changes of an inventory -0f supply parts would:

0 A) Represent a fair value hedge.

0 B) Represent a foreign currency hedge.

0 C) Represent a cash flow hedge.

0 D) Not qualify as a hedge.

11. Merchandise sold FOB shipping point indicates that:

0 A) The seller pays the Ire ight.

0 B) The sale is not consummated until the merchandise reaches the point to which it is being shipped.

0 C) The common carrier holds title until the merchandise is delivered.

0 D) The buyer holds title after the merchandise leaves the selle~s location.

12. Which of the fo llowing is reported as an operating activity in the statement of cash flows?

0 A) The payment of interest on long-term notes.

0 B) The payment of dividends.

0 C) The sale of office equipment.

0 D) The issuance of a stock dividend.

Assessment: o 1: 13

13. Mars Inc. has a defined benefrt pension plan. On December 31 (the end of the fiscal year), the company received the PBO report from the actuary. The fo llowing information was included in the report: ending PBO, $1 10,000;

benefits paid to retirees, $10,000; interest cost, $7,200. The discount rate applied by the actuary was 8%. What was the beginning PBO?

0 A) $112,000.

0 B) $107,200.

0 C) $ 100,000

0 D) $ 90,000.

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