Chapter%2012%20Quiz - Chapter 12 Quiz 1. Which of the...

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Unformatted text preview: Chapter 12 Quiz 1. Which of the following does not meet the FASB's definition of a liability? a. The signing of a three‐year employment contract at a fixed annual salary b. An obligation to provide goods or services in the future c. A note payable with no specified maturity date d. An obligation that is estimated in amount 2. The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate of interest a. plus the present value of all future interest payments discounted at the market (effective) rate of interest. b. plus the present value of all future interest payments discounted at the rate of interest stated on the bond. c. minus the present value of all future interest payments discounted at the market (effective) rate of interest. d. minus the present value of all future interest payments discounted at the rate of interest stated on the bond. 3. How would the carrying value of a bond payable be affected by amortization of each of the following? Discount Premium No effect a. No effect Increase No effect b. Increase Decrease c. Increase d. Decrease 4. Callable bonds a. can be redeemed by the issuer at some time at a pre‐specified price. b. can be converted to stock. c. mature in a series of payments. d. None of these is correct. 5. A contingency must be accrued in the accounts and reported in the financial statements when a. the amount of the loss can be reliably estimated and it is probable that an asset is impaired or a liability incurred. b. it is evident that an asset has been impaired or a liability has been incurred even though the amount of the loss cannot be reliably estimated. c. it is not certain that funds will be available to settle damages that may arise from a pending lawsuit. d. a loss is expected and its amount is uncertain. 6. On July 1, 2011, TJR issued 2,000 of its 8 percent, $1,000 bonds. The bonds were issued to yield 10 percent. The bonds are dated July 1, 2011, and mature on July 1, 2021. Interest is payable semiannually on January 1 and July 1. Using the effective‐interest method, how much of the bond discount should be amortized for the six months ended December 31, 2011? a. $15,076 b. $12,461 c. $9,128 d. $7,538 7. White Sox Corporation issued $200,000 of 10‐year bonds on January 1. The bonds pay interest on January 1 and July 1 and have a stated rate of 10 percent. If the market rate of interest at the time the bonds are sold is 8 percent, what will be the issuance price of the bonds? a. $175,076 b. $141,091 c. $226,840 d. $227,181 8. The effective interest rate of a 10‐year, 8 percent, $1,000 bond issued at 103 would be approximately a. 7.6 percent. b. 3.8 percent. c. 8.0 percent. d. 8.2 percent. 9. On January 1, 2011, Felipe Hospital issued a $250,000, 10 percent, 5‐year bond for $231,601. Interest is payable on June 30 and December 31. Felipe uses the effective‐interest method to amortize all premiums and discounts. Assuming an effective interest rate of 12 percent, how much interest expense should be recorded on June 30, 2011? a. $11,580.05 b. $12,500.00 c. $13,896.06 d. $27,792.12 10. If a $1,000, 9 percent, 10‐year bond was issued at 96 plus accrued interest one month after the authorization date, how much cash was received by the issuer? a. $967.50 b. $960.00 c. $1,007.50 d. $992.50 Answer Key: 1. A 2. A 3. C 4. A 5. A 6. D 7. D 8. A 9. C 10. A ...
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This note was uploaded on 04/06/2011 for the course ACCT 4050 taught by Professor Rodney during the Spring '11 term at University of Georgia Athens.

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