FINANCE
08 Non-current (Long-term) Liabilities.pdf

08 Non-current (Long-term) Liabilities.pdf -...

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Non-current (Long-term) Liabilities Test ID: 7694161 Question #1 of 71 Question ID: 414649 A) B) C) Question #2 of 71 Question ID: 414648 A) B) C) Question #3 of 71 Question ID: 485783 A) B) C) The difference between the fair value of a defined benefit pension plan's assets and its estimated benefit obligation is recognized: on the balance sheet as a net pension asset or liability. as an actuarial adjustment in other comprehensive income. on the income statement as pension expense. Explanation A net pension asset or net pension liability defined benefit plan is the difference between the fair value of the plan's assets and the estimated benefit obligation. A plan with a net pension asset is said to be overfunded, and a plan with a net pension liability is said to be underfunded. An employer offers a defined benefit pension plan and a defined contribution pension plan. The employer's balance sheet is most likely to present an asset or liability related to: the defined contribution plan. the defined benefit plan. both of these pension plans. Explanation Only a defined benefit plan has a funded status that would appear on the balance sheet as an asset or liability. Employer payments into a defined contribution plan are recognized as expenses in the period incurred. A company issues 5% semiannual coupon, 3-year, $1,000 par value bonds on January 1, 20X0, when the market interest rate is 13.3%. The sale proceeds are $800. Under the effective interest rate method, what amount of interest expense per $1,000 par value will the company record for the year ending December 31, 20X1? $116.29. $106.40. $66.29. Explanation Based on a semiannual interest rate of 6.65% (13.30% / 2): Period Interest Expense Coupon Payment Discount Amortization Bond Carrying Value 0 0.00 $800.00 1 53.20 25.00 28.20 828.20 1 of 23
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Question #4 of 71 Question ID: 414626 A) B) C) Question #5 of 71 Question ID: 414634 A) B) C) Question #6 of 71 Question ID: 414616 A) B) C) Question #7 of 71 Question ID: 414609 2 55.08 25.00 30.08 858.28 3 57.08 25.00 32.08 890.36 4 59.21 25.00 34.21 $924.57 Interest expense for Year 2 is $57.08 + $59.21 = $116.29. Under an operating lease (versus a finance lease) which of the following is higher for the lessee? Cash flow from financing. Cash flow from operations. Assets. Explanation The lessee's cash flows from financing will be higher for an operating lease because the payments made for an operating lease are operating cash outflows, not financing cash outflows. The payments made under a finance lease are split between interest paid and principal. The latter is charged to cash flow from financing. Under a finance lease (versus an operating lease) which of the lessee's financial ratios will be higher? Return on equity. Debt/equity. Asset turnover. Explanation The debt/equity ratio will be higher because the finance lease requires the creation of a long-term liability on the balance sheet. Which of the following provisions would least likely be included in the bond covenants? The borrower must: not increase dividends to common shareholders while the bonds are outstanding.
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  • Fall '14
  • Finance, Zero-coupon bond, Question ID

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