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AMIS 522 Spring 2008 Exam 1 w Answers

AMIS 522 Spring 2008 Exam 1 w Answers - Print Name AMIS...

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Print Name____________________________________________ AMIS 522/Spring Quarter 2008 2nd Midterm Examination ANSWER KEY Instructions—READ CAREFULLY! 1. The exam consists of 4 parts and has 12 pages , including the cover sheet, a scratch page and a page of present value tables. Please check your exam for completeness before beginning. If you don’t have all of the pages, raise your hand, and I will give you another copy. 2. You must use the exact table numbers to compute any present values required by the problems that are not already given. Grading will be based on these numbers, even if formula numbers are different. 3. From the time that I start the exam, you will have 105 minutes to complete it. 4. No questions of any kind are permitted during the exam . 5. Use only the paper provided with the exam. All pages, even if blank, must be returned with the exam. Those with missing pages will receive no credit for the exam . 6. If you finish early, check your work to avoid careless errors. When you are ready to leave, bring your exam to the front of the room. Please leave the room quietly so that you not disturb others who are still working! 7. If you are still in the room when I call time, stop writing immediately and place your writing instrument on the desk . Failure to do so will cost you 25 points .
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Part 1: Terminology and Concepts (72 points) Listed below are several accounting terms (numbered 1-15). (1) Additional depreciation (6) Equity Method (11) Securities Held to Maturity (2) Bond indenture (7) Goodwill (12) Stock warrant (3) Call feature (8) Impairment of securities available for sale (13) Trading Securities (4)Bond discount (9) Mortgage bond (14) Unrealized losses (5) Bond premium (10) Securities Available for Sale (15) Unrealized gains REQUIRED : (5 pts. each) Using the numerical labels in the above list, indicate in the blank boxes below which term best relates to the following phrases/descriptions: ANSWERS PHRASE/DESCRIPTION 13 Treasury bonds held for short-term profit. 8 Requires recognition on the income statement if judged to be other than temporary. 15 When related to trading securities, they increase net income. 1 Results when fair value of investee's assets exceeds carrying value. 2 Promises made to bondholders. 12 Option to purchase shares at a fixed price. 6 Used when investor can significantly influence investee. 3 Protects debt issuer if interest rates fall. 2
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Part 1 (continued) Place an “X” in the blank box next to the best answer for each of the following questions (4 pts. each): 1. Brutus Co. failed to amortize the discount on an outstanding five-year bond payable. What is the resulting effect on interest expense and the bond carrying value, respectively? X Understated, understated Understated, overstated. Overstated, understated. Overstated, overstated. 2. When the interest payment dates are March 1 and September 1, and the bonds are issued on July 1, the amount of interest expense reported on the December 31 income statement for the year of issue would be for: Four months.
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