A short-term obligation can be excluded from current liabilities if the company intends
to refinance it on a long-term basis. *
0/1

True
 
False

Correct answer
False

 
Downing Company issues 5,000,000, 6%, 5-year bonds dated January 1, 2010 on
January 1, 2010. The bonds pay interest semiannually on June 30 and December 31.
The bonds are issued to yield 5%. What are the proceeds from the bond issue? *
1/1

c. 5,218,809
 
b. 5,216,494
d. 5,217,308
a. 5,000,000

 
If bonds are issued initially at a premium and the effective-interest method of
amortization is used, interest expense in the earlier years will be *
1/1

b. greater than the amount of interest payments.

c. the same as if the straight-line method were used.
d. less than if the straight-line method were used.
a. greater than if the straight-line method were used.
 
 
Amortization of a premium increases bond interest expense, while amortization of a
discount decreases bond interest expense. *
1/1

True
False
 
 
If bonds are issued between interest dates, the entry on the books of the issuing
corporation could include a *
1/1

c. credit to Interest Expense.

 
a. debit to Interest Payable.
b. credit to Interest Receivable.
d. credit to Unearned Interest.

 
A company issues 20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2009.
Interest is paid on June 30 and December 31. The proceeds from the bonds are
19,604,145. Using straight-line amortization, what is the carrying value of the bonds
on December 31, 2011? *
1/1

d. 19,663,523
 
c. 19,633,834
b. 19,940,622
a. 19,670,231

 
Dividends in arrears on the cumulative preferred share should be recorded as a
current liability. *
1/1

True
False
 
 
On January 1, 2010, Ellison Co. issued eight-year bonds with a face value of
1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and
December 31. The bonds were sold to yield 8%. 60. The present value of the principal
is *
1/1

d.627,000.
c.623,000.
b.540,000.
a.534,000.
 
 
Current liabilities are usually recorded and reported in financial statements at their full
maturity value. *
1/1

True
 
False

 
Warranty4U provides extended service contracts on electronic equipment sold through
major retailers. The standard contract is for three years. During the current year,
Warranty4U provided 21,000 such warranty contracts at an average price of 81 each.
Related to these contracts, the company spent 200,000 servicing the contracts during
the current year and expects to spend 1,050,000 more in the future. What is the net
profit that the company will recognize in the current year related to these contracts? *
1/1

a. 451,000.
d. 367,000.
 
c. 150,333.
b. 1,501,000.

 
If bonds are initially sold at a discount and the straight-line method of amortization is
used, interest expense in the earlier years will *
1/1

c. be the same as what it would have been had the effective-interest method of amortization been
used.
d. be less than the stated (nominal) rate of interest.
a. exceed what it would have been had the effective-interest method of amortization been used.
 
b. be less than what it would have been had the effective-interest method of amortization been
used.

 
An example of an item which is not a liability is *
1/1

c. accrued estimated warranty costs.

a. dividends payable in share.
 
b. advances from customers on contracts.
d. the portion of long-term debt due within one year.

 
On January 1, Patterson Inc. issued 5,000,000, 9% bonds for 4,695,000. The market
rate of interest for these bonds is 10%. Interest is payable annually on December 31.
Patterson uses the effective-interest method of amortizing bond discount. At the end
of the first year, Patterson should report unamortized bond discount of *
0/1

d. 255,000.
 
c. 258,050.
a. 274,500.
b. 285,500.

Correct answer
b. 285,500.

 
Electronics4U manufactures high-end whole home electronic systems. The company
provides a one-year warranty for all products sold. The company estimates that the
warranty cost is 200 per unit sold and reported a liability for estimated warranty costs
6.5 million at the beginning of this year. If during the current year, the company sold
50,000 units for a total of 243 million and paid warranty claims of 7,500,000 on current
and prior year sales, what amount of liability would the company report on its balance
sheet at the end of the current year? *
1/1

c. 9,000,000.
 
b. 3,500,000.
d. 10,000,000.
a. 2,500,000.

 
A company issues 20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2010.
Interest is paid on June 30 and December 31. The proceeds from the bonds are
19,604,145. Using effective-interest amortization, how much interest expense will be
recognized in 2010? *
1/1

c. 1,568,498
 
b. 1,560,000
d. 1,568,332
a. 780,000

 
On February 10, 2010, after issuance of its financial statements for 2009, House
Company entered into a financing agreement with Lebo Bank, allowing House
Company to borrow up to 4,000,000 at any time through 2012. Amounts borrowed
under the agreement bear interest at 2% above the bank's prime interest rate and
mature two years from the date of loan. House Company presently has 1,500,000 of
notes payable with First National Bank maturing March 15, 2010. The company
intends to borrow 2,500,000 under the agreement with Lebo and liquidate the notes
payable to First National. The agreement with Lebo also requires House to maintain a
working capital level of 6,000,000 and prohibits the payment of dividends on common
stock without prior approval by Lebo Bank. From the above information only, the total
short-term debt of House Company as of the December 31, 2010 balance sheet date
is *
1/1

c. 2,000,000.
d. 4,000,000.
b. 1,500,000.
 
a. 0.

 
If a short-term obligation is excluded from current liabilities because of refinancing, the
footnote to the financial statements describing this event should include all of the
following information except *
1/1

a. a general description of the financing arrangement.

c. the terms of any equity security issued or to be issued.
d. the number of financing institutions that refused to refinance the debt, if any.
 
b. the terms of the new obligation incurred or to be incurred.

 
The term used for bonds that are unsecured as to principal is *
0/1

c. indebenture bonds.
d. callable bonds.
a. junk bonds.
 
b. debenture bonds.

Correct answer
b. debenture bonds.

 
Which of the following best describes the cash-basis method of accounting for
warranty costs? *
1/1

d. Expensed when incurred.

 
b. Expensed when liability is accrued.
a. Expensed based on an estimate in the year of sale.
c. Expensed when warranty claims are certain.

 
A company offers a cash rebate of 1 on each 4 package of light bulbs sold during
2010. Historically, 10% of customers mail in the rebate form. During 2010, 4,000,000
packages of light bulbs are sold, and 140,000 1 rebates are mailed to customers.
What is the rebate expense and liability, respectively, shown on the 2010 financial
statements dated December 31? *
1/1

B. 400,000; 260,000
 
C. 260,000; 260,000
A. 400,000; 400,000
D. 140,000; 260,000

 
Paying a current liability with cash will always reduce the current ratio. *
1/1

False
 
True

 
On January 1, 2010, Ellison Co. issued eight-year bonds with a face value of
1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and
December 31. The bonds were sold to yield 8%. 61. On January 1, 2010, Ellison Co.
issued eight-year bonds with a face value of 1,000,000 and a stated interest rate of
6%, payable semiannually on June 30 and December 31. The bonds were sold to
yield 8%. 61. The present value of the interest is *
1/1

a. 883,560.
 
c. 889,560.
d. 999,600.
b. 884,820.

 
A company discloses gain contingencies in the notes only when a high probability
exists for realizing them. *
1/1

True
 
False

 
The replacement of an existing bond issue with a new one is called refunding. *
1/1

True
 
False

 
Included in Vernon Corp.'s liability account balances at December 31, 2010, were the
following:• 7% note payable issued October 1, 2010, maturing September 30, 2011,
250,000• 8% note payable issued April 1, 2010, payable in six equal annual
installments of 150,000 beginning April 1, 2011, 600,000. Vernon's December 31,
2010 financial statements were issued on March 31, 2011. On January 15, 2011, the
entire 600,000 balance of the 8% note was refinanced by issuance of a long-term
obligation payable in a lump sum. In addition, on March 10, 2011, Vernon
consummated a non-cancellable agreement with the lender to refinance the
7%,250,000 note on a long-term basis, on readily determinable terms that have not
yet been implemented. On the December 31, 2010 balance sheet, the amount of the
notes payable that Vernon should classify as short-term obligations is *
1/1
d. 0.
 
c. 50,000.
b. 125,000.
a. 175,000.

 
The cause for litigation must have occurred on or before the date of the financial
statements to report a liability in the financial statements. *
1/1

True
 
False

 
Felton Co. sells major household appliance service contracts for cash. The service
contracts are for a one-year, two-year, or three-year period. Cash receipts from
contracts are credited to unearned service contract revenues. This account had a
balance of 480,000 at December 31, 2009 before year-end adjustment. Service
contract costs are charged as incurred to the service contract expense account, which
had a balance of 120,000 at December 31, 2009. Outstanding service contracts at
December 31, 2009 expire as follows: During 2010 100,000 2011 160,000 2012
70,000. What amount should be reported as unearned service contract revenues in
Felton's December 31, 2009 Statement of Financial Position? *
1/1

c. 240,000.
b. 330,000.
 
d. 220,000.
a. 360,000.

 
On September 11, 2017, an entity borrowed on a P5,400,000 note payable from a
bank. The note bears interest at 12% and is payable in three equal annual principal
payments of P1,800,000. On this date, the bank's prime rate was 11 %. The first
annual payment for interest and principal was made on September 1, 2018. What is
the interest expense for 2018? *
0/1

a. 576,000
b. 432,000
C. 648,000
d. 594,000

 
Liabilities are *
1/1

b. deferred credits that are recognized and measured in conformity with generally accepted
accounting principles.
a. accounts having credit balances after closing entries are made.
c. obligations to transfer ownership shares to other entities in the future.
d. obligations arising from past transactions and payable in assets or services in the future.
 
 
A mortgage bond is referred to as a debenture bond. *
0/1

False
True
 
Correct answer
False

 
Which of the following is generally associated with payables classified as accounts
payable? Periodic Payment Of Interest; Yes or No? Secured by Collateral; Yes or
No? *
1/1

d. Yes; Yes
c. Yes; No
b. No; Yes
a. No; No
 
 
When the interest payment dates of a bond are May 1 and November 1, and a bond
issue is sold on June 1, the amount of cash received by the issuer will be *
0/1

a. decreased by accrued interest from June 1 to November 1.

c. increased by accrued interest from June 1 to November 1.
b. decreased by accrued interest from May 1 to June 1.
 
d. increased by accrued interest from May 1 to June 1.

Correct answer
d. increased by accrued interest from May 1 to June 1.

 
Which of the following best describes the accrual method of accounting for warranty
costs? *
1/1

d. Expensed when incurred.

a. Expensed when paid.
c. Expensed based on estimate in year of sale.
 
b. Expensed when warranty claims are certain.

 
The implicit interest rate is the rate that equates the cash received with the amounts
received in the future. *
1/1

False
True
 
 
The cause for litigation must have occurred on or before the date of the financial
statements to report a liability in the financial statements. *
0/1

False
 
True

Correct answer
True

 
A zero-interest-bearing note payable that is issued at a discount will not result in any
interest expense being recognized. *
0/1

False
True
 
Correct answer
False

 
If a company plans to retire long-term debt from a bond retirement fund, it should
report the debt as current. *
1/1

True
False
 
 
Collier borrowed 175,000 on October 1 and is required to pay 180,000 on March 1.
What amount is the note payable recorded at on October 1 and how much interest is
recognized from October 1 to December 31? *
0/1

b. 175,000 and 3,000.

c. 180,000 and 0.
a. 175,000 and 0.
d. 175,000 and 5,000.
 
Correct answer
b. 175,000 and 3,000.

 
On September 11, 2017, an entity borrowed on a P5,400,000 note payable from a
bank. The note bears interest at 12% and is payable in three equal annual principal
payments of P1,800,000. On this date, the bank's prime rate was 11 %. The first
annual payment for interest and principal was made on September 1, 2018. On
December 31, 2017, what amount should be reported as accrued interest payable?
0/1

a. 144,000
b. 216,000
C. 32,000
d. 198,000

 
Which of the following situations may give rise to unearned revenue? *
0/1
a. Providing trade credit to customers.
c. Selling magazine subscriptions.
d. Providing manufacturer warranties.
 
b. Selling inventory.

Correct answer
c. Selling magazine subscriptions.

 
Sodium Inc. borrowed 175,000 on April 1. The note requires interest at 12% and
principal to be paid in one year. How much interest is recognized for the period from
April 1 to December 31? *
1/1

d. 15,750.
 
b. 21,000.
c. 5,250.
a. 0.

 
Farmer Company issues 10,000,000 of 10-year, 9% bonds on March 1, 2010 at 97
plus accrued interest. The bonds are dated January 1, 2010, and pay interest on June
30 and December 31. What is the total cash received on the issue date? *
1/1

d. 9,550,000
b. 10,225,000
c. 9,850,000
 
a. 9,700,000

 
In March 2011, an explosion occurred at Kirk Co.'s plant, causing damage to area
properties. By May 2011, no claims had yet been asserted against Kirk. However,
Kirk's management and legal counsel concluded that it was reasonably possible that
Kirk would be held responsible for negligence, and that 4,000,000 would be a
reasonable estimate of the damages. Kirk's 5,000,000 comprehensive public liability
policy contains a 400,000 deductible clause. In Kirk's December 31, 2010 financial
statements, for which the auditor's fieldwork was completed in April 2011, how should
this casualty be reported? *
1/1
a. As a note disclosing a possible liability of 4,000,000.
b. As an accrued liability of 400,000.
d. No note disclosure of accrual is required for 2010 because the event occurred in 2011.
c. As a note disclosing a possible liability of 400,000.
 
 
Feller Company issues 20,000,000 of 10-year, 9% bonds on March 1, 2010 at 97 plus
accrued interest. The bonds are dated January 1, 2010, and pay interest on June 30
and December 31. What is the total cash received on the issue date? *
1/1

a. 19,400,000
c. 19,700,000
 
d. 19,100,000
b. 20,450,000

 
On September 1, 2010, Herman Co. issued a note payable to National Bank in the
amount of 1,200,000, bearing interest at 12%, and payable in three equal annual
principal payments of 400,000. On this date, the bank's prime rate was 11%. The first
payment for interest and principal was made on September 1, 2011. At December 31,
2011, Herman should record accrued interest payable of *
1/1

d. 29,334.
c. 32,000.
 
a. 48,000.
b. 44,000.

 
On January 1, 2010, Beyer Co. leased a building to Heins Corp. for a ten-year term at
an annual rental of 80,000. At inception of the lease, Beyer received 320,000 covering
the first two years' rent of 160,000 and a security deposit of 160,000. This deposit will
not be returned to Heins upon expiration of the lease but will be applied to payment of
rent for the last two years of the lease. What portion of the 320,000 should be shown
as a current and long-term liability, respectively, in Beyer's December 31, 2010
balance sheet for Current Liability & Long-term Liability? *
1/1

d. 160,000 ;80,000
b. 80,000 ;160,000
 
a. 0 ;320,000
c. 160,000 ;160,000

 
On January 1, 2010, Ellison Co. issued eight-year bonds with a face value of
1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and
December 31. The bonds were sold to yield 8%. 61. The present value of the interest
is *
1/1

a. 344,820.
d. 376,830.
c. 372,600.
b. 349,560.
 
 
Palmer Frosted Flakes Company offers its customers a pottery cereal bowl if they
send in 3 boxtops from Palmer Frosted Flakes boxes and 1.00. The company
estimates that 60% of the boxtops will be redeemed. In 2010, the company sold
675,000 boxes of Frosted Flakes and customers redeemed 330,000 boxtops receiving
110,000 bowls. If the bowls cost Palmer Company 2.50 each, how much liability for
outstanding premiums should be recorded at the end of 2010? *
1/1

a. 25,000
b. 37,500
 
c. 62,500
d. 87,500

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

d. 500,000.
c. 166,667.
a. 0.
b. 333,333.
 
 
Which of the following is a characteristic of the expense warranty approach,but not the
sales warranty approach? *
1/1

b. Warranty expense.
c. Unearned warranty revenue.
a. Estimated liability under warranties.
 
d. Warranty revenue

 
Bond issues that mature in installments are called serial bonds. *
1/1

True
 
False

 
A corporation borrowed money from a bank to build a building. The long-term note
signed by the corporation is secured by a mortgage that pledges title to the building as
security for the loan. The corporation is to pay the bank 80,000 each year for 10 years
to repay the loan. Which of the following relationships can you expect to apply to the
situation? *
1/1

a. The balance of mortgage payable at a given balance sheet date will be reported as a long-term
liability.
b. The balance of mortgage payable will remain a constant amount over the 10-year period.
c. The amount of interest expense will decrease each period the loan is outstanding, while the
portion of the annual payment applied to the loan principal will increase each period.
 
d. The amount of interest expense will remain constant over the 10-year period.

0/1

a. 576,000
b. 432,000
C. 648,000
d. 594,000
 
Correct answer
a. 576,000

 
On January 1, 2017, an entity leased a building from a lessor with the following
pertinent information: Annual rental payable at the end of each year 1,000,000; Initial
direct cost paid 400,000; Lease incentive received 100,000; Leasehold improvement
200,000; Purchase option that is reasonably certain to be exercised, 500,000; Lease
term 5 years, Useful life of building 8 years. Implicit interest rate of 10%. PV of an
ordinary annuity of 1 for 5 periods at 10% 3.79, Present value of 1 for 5 periods at
10% 0.62. What is the cost of the right of use asset? *
0/1

a. 4,500,000
 
b. 4,400,000
c. 4,700,000
d. 4,600,000

Correct answer
b. 4,400,000

 
Caruso Company had 500,000 ordinary shares issued and outstanding on December
31, 2017. On July 1, 2018, an additional 500,000 shares were issued for cash. Caruso
also had stock options outstanding at the beginning and end of 2018 which allow the
holders to purchase 150,000 ordinary shares at P20 per share. The average market
price of Caruso's ordinary shares was P25 during 2008. What is the number of shares
that should be used in computing diluted earnings per share for the year ended
December 31, 2018? *
1/1

1,030,000
870,000
787,500
780,000
 
 
On January 2, 2017, Ramos Co. issued at par P10,000 of 6% bonds convertible in
total into 1,000 ordinary shares. No bonds were converted during 2017. Throughout
2017, Ramos had 1,000 ordinary shares outstanding. Ramos's 2017 net income was
P3,000, and its income tax rate is 30%. No potentially dilutive securities other than the
convertible bonds were outstanding during 2017. Ramos's diluted earnings per share
for 2017 would be *
1/1

a. P1.50.
b. P1.71.
 
c. P1.80.
d. P3.42.

 
At the beginning of current year, an entity entered into an 8-year finance lease for an
equipment. The entity accounted for the acquisition of the finance lease at P5,000,000
which included a P500,000 purchase option that is reasonably certain to be exercised.
The expected fair value of the equipment is P400,000 at the end of the 10-year useful
life. The straight line depreciation is used. What amount of depreciation should be
recognized for the current year? *
0/1

a. 575,000
 
B. 460,000
c. 625,000
d. 450,000

Correct answer
B. 460,000

 
Convertible bonds *
1/1

can be converted to cash

are usually secured by a first or second mortgage.
pay interest only in the event earnings are sufficient to cover the interest.
may be exchanged for equity securities.
 
 
With respect to the computation of earnings per share, which of the following would be
most indicative of a simple capital structure? *
Ordinary share, preference share, and convertible securities outstanding in lots of even
thousands
Earnings derived from one primary line of business
Ownership interest consisting solely of ordinary share
 
None of these
 
At December 31, 2017 Polk Company had 300,000 shares of ordinary shares and
10,000 shares of 5%, P100 par value cumulative preference shares outstanding. No
dividends were declared on either the preference or ordinary shares in 2017 or 2018.
On January 30, 2019, prior to the issuance of its financial statements for the year
ended December 31, 2018, Polk declared a 100% stock dividend on its ordinary
shares. Net income for 2018 was P950,000. In its 2018 financial statements, Polk's
2018 earnings per ordinary share should be *
1/1

P1.50.
 
P1.58.
P3.00.
P3.17.

 
Downing Company issues 5,000,000, 6%, 5-year bonds dated January 1, 2020 on
January 1, 2020. The bonds pay interest semiannually on June 30 and December 31.
The bonds are issued to yield 5%. What are the proceeds from the bond issue? *
1/1

5,000,000
5,216,494
5,218,809
 
5,217,308

 
On January 1, 2017, an entity leased a building from a lessor with the following
pertinent information:Annual rental payable at the end of each year 1,000,000, Initial
direct cost paid 400,000, Lease incentive received 100,000, Leasehold improvement
200,000, Purchase option that is reasonably certain to be exercised, 500,000 Lease
term 5 years, Useful life of building 8 years. Implicit interest rate 10%. PV of an
ordinary annuity of 1 for 5 periods at 10% 3.79, Present value of 1 for 5 periods at
10% 0.62. What is the initial lease liability? *
1/1

a. 4.100,000
 
b. 3,790.000
C. 4,500,000
d. 4,290,000

 
On September 11, 2017, an entity borrowed on a P5,400,000 note payable from a
bank. The note bears interest at 12% and is payable in three equal annual principal
payments of P1,800,000. On this date, the bank's prime rate was 11 %. The first
annual payment for interest and principal was made on September 1, 2018. . On
December 31, 2017, what amount should be reported as accrued interest payable? *
0/1

a. 144,000
b. 216,000
C. 32,000
d. 198,000
 
Correct answer
b. 216,000

 
During the current year, an entity issued 5,000,000 9% face value bonds at 110 at
interest date. In connection with the issue of the bonds, the entity paid the following
costs: Promotion cost, 100,000 Engraving and printing cost, 200,000 Underwriters'
commission 400,000, Legal fees 350,000. Fees paid to accountants for registration
50,000. What amount should be recorded initially as discount or premium on bonds
payable? *
0/1

a. 500,000 premium
 
b. 600,000 discount
c. 600,000 premium
d. 600,000 discount

Correct answer
d. 600,000 discount

 
At December 31, 2016, Pratt Company had 500,000 ordinary shares outstanding. On
October 1, 2017, an additional 100,000 shares of common stock were issued. In
addition, Pratt had P10,000,000 of 6% convertible bonds outstanding on December
31, 2016, which are convertible into 225,000 ordinary shares. No bonds were
converted into common stock in 2017. The net income for the year ended December
31, 2017, was P3,000,000. Assuming the income tax rate was 30%, the diluted
earnings per share for the year ended December 31, 2017 *
1/1

P6.52.
P4.80.
P4.56.
 
P4.00.

 
On March 1, 2017, an entity borrowed P5,000,000 and signed a 2-year note bearing
interest at 12% per annum compounded annually. Interest is payable in full at maturity
on February 28, 2019. What amount should be reported as accrued interest payable
on December 31, 2018? *
0/1

a. 1,200,000
b. 1,160,000
c. 600,000
d. 500,000
 
Correct answer
b. 1,160,000

 
Quayle Corporation had two issues of securities outstanding: ordinary share and an
8% convertible bond issue in the face amount of P16,000,000. The interest payment
dates of the bond issue are June 30th and December 31st. The conversion clause in
the bond indenture entitles the bondholders to receive forty shares of P20 par value
ordinary share in exchange for each P1,000 bond. On June 30, 2017, the holders of
P2,400,000 face value bonds exercised the conversion privilege. The market price of
the bonds on that date was P1,100 per bond and the market price of the ordinary
share was P35. The total unamortized bond discount at the date of conversion was
P1,000,000. In applying the book value method, what amount should Quayle credit to
the account "paid-in capital in excess of par," as a result of this conversion? *
0/1

P330,000.
P160,000.
 
P1,440,000.
P720,000

Correct answer
P330,000.

 
In computing earnings per share, the equivalent number of shares of convertible
preference share is added as an adjustment to the denominator (number of shares
outstanding). If the preference share is cumulative, which amount should then be
added as an adjustment to the numerator (net earnings)? *
1/1

Annual preferred dividend

 
Annual preferred dividend times (one minus the income tax rate)
Annual preferred dividend times the income tax rate
Annual preferred dividend divided by the income tax rate

 
On January 1, 2017, an entity leased a building from a lessor with the following
pertinent information: Annual rental payable at the end of each year 1,000,000, Initial
direct cost paid 400,000, Lease incentive received 100,000, Leasehold improvement
200,000, Purchase option that is reasonably certain to be exercised, 500,000 Lease
term 5 years, Useful life of building 8 years. Implicit interest rate of 10%. PV of an
ordinary annuity of 1 for 5 periods at 10% 3.79, Present value of 1 for 5 periods at
10% 0.62. What is the depreciation for 2017? *
0/1

a. 880,000
b. 900,000
C. 550,000
d. 575,000
 
Correct answer
C. 550,000

 
Warranty4U provides extended service contracts on electronic equipment sold through
major retailers. The standard contract is for three years. During the current year,
Warranty4U provided 21,000 such warranty contracts at an average price of 81 each.
Related to these contracts, the company spent 200,000 servicing the contracts during
the current year and expects to spend 1,050,000 more in the future. What is the net
profit that the company will recognize in the current year related to these contracts? *
1/1

451,000.
1,501,000.
150,333.
367,000.
 
 
Which of the following represents the total number of shares that a corporation may
issue? *
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Authorized Shares
 
Issued Shares
Unissued Shares
Treasury Shares

 
Sodium Inc. borrowed 175,000 on April 1. The note requires interest at 12% and
principal to be paid in one year. How much interest is recognized for the period from
April 1 to December 31? *
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a. 0.
b. 21,000.
c. 5,250.
d. 15,750.
 
 
On January 1, 2017, an entity leased a building from a lessor with the following
pertinent information: Annual rental payable at the end of each year 1,000,000, Initial
direct cost paid 400,000, Lease incentive received 100,000, Leasehold improvement
200,000, Purchase option that is reasonably certain to be exercised, 500,000 Lease
term 5 years, Useful life of building 8 years. Implicit interest rate 10%. PV of an
ordinary annuity of 1 for 5 periods at 10% 3.79, Present value of 1 for 5 periods at
10% 0.62. What is the interest expense for 2017? *
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a. 410,000
 
b. 379,000
c. 450,000
d. 429,000

 
Dilutive convertible securities must be used in the computation of *
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basic earnings per share only.

diluted earnings per share only.
 
diluted and basic earnings per share.
none of these.

 
Hoffman Corporation had a net income for the year of P480,000 and a weighted
average number of ordinary shares outstanding during the period of 200,000 shares.
The company has a convertible bond issue outstanding. The bonds were issued four
years ago at par (P2,000,000), carry a 7% interest rate, and are convertible into
40,000 ordinary shares. The company has a 40% tax rate. Diluted earnings per share
are *
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P1.65
P2.23.
P2.35.
 
P2.58.

 
On January 1, 2018, Dingler Corporation had 125,000 shares of its P2 par value
ordinary shares outstanding. On March 1, Dingler sold an additional 250,000 shares
on the open market at P20 per share. Dingler issued a 20% stock dividend on May 1.
On August 1, Dingler purchased 140,000 shares and immediately retired the stock. On
November 1, 200,000 shares were sold for P25 per share. What is the weighted-
average number of shares outstanding for 2018? *
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510,000
375,000
 
358,333
258,333
 
At the beginning of current year, an entity entered into an 8-year lease for an
equipment. The entity accounted for the acquisition as a finance lease for P6,000,000
which included a P600,000 residual value guarantee. At the end of the lease, the
asset will revert back to the lessor. It is estimated that the fair value of the asset at the
end of the 10-year useful life would be P400,000. The entity used the straight line
depreciation. What amount should be recognized as depreciation expense for the
current year? *
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a. 675,000
 
b. 700,000
C. 540,000
d. 560,000

 
On January 1, 2017, an entity issued 10-year bonds with face amount of P5,000,000
for P5,775,000. The entity paid bond issue cost of P100,000 on same date. The stated
interest rate on the bonds is 10% payable annually every December 31. The bonds
have an 8% yield per annum after considering the bond issue cost. The entity used
the effective interest method of amortizing bond premium. What is the carrying amount
of the bonds payable on December 31, 2017? *
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a. 5,000,000
b. 5,675,000
 
C. 5,629,000
d. 5,737,000

Correct answer
C. 5,629,000

 
What effect will the acquisition of treasury share have on shareholders' equity and
earnings per share, respectively? *
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Decrease and no effect

Increase and no effect
Decrease and increase
 
Increase and decrease

 
Jenks Co.has $2,500,000 of 8% convertible bonds outstanding. Each $1,000 bond is
convertible into 30 shares of $30 par value ordinary shares. The bonds pay interest on
January 31 and July 31. On July 31, 2017, the holders of $800,000 bonds exercised
the conversion privilege. On that date, the market price of the bonds was 105 and the
market price of the ordinary shares was $36. The total unamortized bond premium at
the date of conversion was $175,000. Jenks should record, as a result of this
conversion, a *
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credit of 136,000 to Paid-in Capital in Excess of Par.

 
credit of 120,000 to Paid-in Capital in Excess of Par.
credit of 56,000 to Premium on Bonds Payable.
loss of 8,000

 
Total shareholder's equity represents *
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A claim to specific assets contributed by the owners

The maximum amount that can be borrowed by the entity
A claim against a portion of the total assets of an entity
 
Only the amount of earnings that have been retained in the business

 
Jett Corp. had 600,000 shares of ordinary shares outstanding on January 1. It issued
900,000 shares on July 1, and had income applicable to ordinary shares of
P1,050,000 for the year ending December 31, 2017. Earnings per share of ordinary
share for 2017 would be *
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P1.75.
P.83.
P1.00.
 
d. P1.17.

 
On January 1, 2017, an entity issued 10-year bonds with face amount of P5,000,000
for P5,775,000. The entity paid bond issue cost of P100,000 on same date. The stated
interest rate on the bonds is 10% payable annually every December 31. The bonds
have an 8% yield per annum after considering the bond issue cost. The entity used
the effective interest method of amortizing bond premium. What is the interest
expense for 2017? *
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a. 454,000
b. 400,000
c. 500,000
d. 567,500
 
Correct answer
a. 454,000

 
When computing diluted earnings per share, convertible bonds are *
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ignored.
assumed converted whether they are dilutive or antidilutive.
assumed converted only if they are antidilutive.
assumed converted only if they are dilutive.
 
 
Collier borrowed 175,000 on October 1 and is required to pay 180,000 on March 1.
What amount is the note payable recorded at on October 1 and how much interest is
recognized from October 1 to December 31? *
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175,000 and 0.
175,000 and 3,000.
 
180,000 and 0.
175,000 and 5,000.

 
On March 1, 2017, an entity issued 5,000 of P1,000 face value bonds at 110 plus
accrued interest. The entity paid bond issue cost of P400,000. The bonds were dated
November 1, 2016, mature on November 1, 2026, and bear interest at 12% payable
semiannually on May 1 and November 1. What net amount was received from the
bond issuance? *
0/1

a. 5,500,000
b. 5,700 000
 
c. 5,300,000
d. 5,100,000

Correct answer
c. 5,300,000

 
Treasury shares are *
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Shares held as an investment by the treasurer of the corporation

Shares held as an investment of the corporation
Issued and outstanding shares
Issued but not outstanding shares
 
 
On February 10, 2020, after issuance of its financial statements for 2019, House
Company entered into a financing agreement with Lebo Bank, allowing House
Company to borrow up to 4,000,000 at any time through 2022. Amounts borrowed
under the agreement bear interest at 2% above the bank's prime interest rate and
mature two years from the date of loan. House Company presently has 1,500,000 of
notes payable with First National Bank maturing March 15, 2020. The company
intends to borrow 2,500,000 under the agreement with Lebo and liquidate the notes
payable to First National. The agreement with Lebo also requires House to maintain a
working capital level of 6,000,000 and prohibits the payment of dividends on common
stock without prior approval by Lebo Bank. From the above information only, the total
short-term debt of House Company as of the December 31, 2020 balance sheet date
is *
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0.
1,500,000.
 
2,000,000.
4,000,000.

 
A company issues 20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2019.
Interest is paid on June 30 and December 31. The proceeds from the bonds are
19,604,145. Using straight-line amortization, what is the carrying value of the bonds
on December 31, 2021? *
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a. 19,670,231
 
b. 19,940,622
c. 19,633,834
d. 19,663,523

Correct answer
d. 19,663,523

 
In computing earnings per share for a simple capital structure, if the preference share
is cumulative, the amount that should be deducted as an adjustment to the numerator
(earnings) is the *
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preferred dividends in arrears.

preferred dividends in arrears times (one minus the income tax rate).
annual preferred dividend times (one minus the income tax rate).
 
none of these.

Correct answer
none of these.

 
A company issues 20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2020.
Interest is paid on June 30 and December 31. The proceeds from the bonds are
19,604,145. Using effective-interest amortization, how much interest expense will be
recognized in 2020? *
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a. 780,000
b. 1,560,000
c. 1,568,498
 
d. 1,568,332

 
On September 1, 2020, Herman Co. issued a note payable to National Bank in the
amount of 1,200,000, bearing interest at 12%, and payable in three equal annual
principal payments of 400,000. On this date, the bank's prime rate was 11%. The first
payment for interest and principal was made on September 1, 2021. At December 31,
2021, Herman should record accrued interest payable of *
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48,000.
44,000.
32,000.
29,334.
 
Correct answer
32,000.

 
On January 1, 2017, an entity leased a building from a lessor with the following
pertinent information: Annual rental payable at the end of each year 1,000,000, Initial
direct cost paid 400,000, Lease incentive received 100,000, Leasehold improvement
200,000, Purchase option that is reasonably certain to be exercised, 500,000 Lease
term 5 years, Useful life of building 8 years. Implicit interest rate 10%. PV of an
ordinary annuity of 1 for 5 periods at 10% 3.79, Present value of 1 for 5 periods at
10% 0.62. What is the lease liability on December 31,2017? *
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a. 3,510,000
b. 3,169,000
c. 3,950,000
d. 3,719,000
 
Correct answer
a. 3,510,000