TOA QUIZZER 2

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1. When all bonds mature on a single date, they are called

a. Term bonds c. Debenture bonds

b. Serial bonds d. Callable bonds

____ 2. Bonds payable issued with scheduled maturities at various dates are called

a. Convertible bonds c. Serial bonds

b. Term bonds d. Callable bonds

____ 3. Costs incurred in connection with the issuance of ten-year bonds which sold at a slight premium shall be

a. Charged to retained earnings when the bonds are issued

b. Expensed in the year in which incurred
c. Capitalized as organization cost
d. Reported in the statement of financial position as a deduction from bonds payable and amortized over the ten-
year bond term

____ 4. Unamortized debt discount shall be reported in the statement of financial position of the issuer as a
a. Direct deduction from the face value of the debt
b. Direct deduction from the present value of the debt
c. Deferred charge
d. Part of the issue costs

____ 5. The issuer of a 10 year term bond sold at par three years ago with interest payable May 1 and November 1 each year, shall report in its
December 31 statement of financial position

a. Liability of accrued interest

b. Addition to bonds payable
c. Increase in deferred charges
d. Contingent liability

____ 6. 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

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

b. Decreased by accrued interest from May 1 to June 1
c. Increased by accrued interest from June 1 to November 1
d. Increased by accrued interest from May 1 to June 1

____ 7. A bond issued on June 1 of the current year has interest payment dates of April 1 and October 1. Bond interest expense for the current year
ended December 31 is for a period of

a. Three months c. Six months

b. Four months d. Seven months

____ 8. The market price of a bond issued at a discount is the present value of its principal amount at the market rate of interest

a. Less the present value of all future interest payments at the market rate of interest.
b. Less the present value of all future interest payments at the rate of interest stated on the bond.
c. Plus the present value of all future interest payments at the market rate of interest.
d. Plus the present value of all future interest payments at the rate of interest stated on the bond.
____ 9. In theory the proceeds from the sale of a bond would be equal to

a. The face amount of the bond

b. The present value of the principal amount due at the end of the life of the bond plus the present value of the
interest payments made during the life of the bond.
c. The face amount of the bond plus the present value of the interest payments made during the life of the bond.
d. The sum of the face amount of the bond and the periodic interest payments.

____ 10. How would the amortization of premium on bonds payable affect each of the following?

Carrying value of bond Net Income

a. Increase Decrease
b. Increase Increase
c. Decrease Decrease
d. Decrease Increase

____ 11. How would the amortization of discount on bonds payable affect each of the following?

Carrying value of bond Net Income

a. Increase Decrease
b. Increase Increase
c. Decrease Decrease
d. Decrease Increase

____ 12. In current accounting practice, the valuation method used for bonds payable is

a. Historical cost
b. Discounted cash flow valuation at current yield rate
c. Maturity amount
d. Discounted cash flow valuation at yield rate at issuance

____ 13. A five-year term bond was issued by an entity on January 1, 2008 at a premium. The carrying amount of the bond at December 31, 2009
would be

a. The same as the carrying amount at January 1, 2008

b. Higher than the carrying amount at January 1, 2008
c. Higher than the carrying amount at December 31, 2010
d. Lower than the carrying amount at December 31, 2010

____ 14. A five-year term bond was issued by an entity on January 1, 2008 at a discount. The carrying amount of the bond at December 31, 2009
would be

a. Higher than the carrying amount at December 31, 2008.

b. Lower than the carrying amount at December 31, 2008.
c. The same as the carrying amount at December 31, 2008.
d. Higher than the carrying amount at December 31, 2010.

____ 15. The proceeds from a bond issued with nondetachable share warrants shall be accounted for

a. Entirely as bond payable

b. Entirely as shareholders’ equity
c. Partly as unearned revenue and partly as bonds payable
d. Partly as bonds payable and partly as shareholders’ equity

____ 16. What is the effective interest rate of a bond measured at amortized cost?

a. The stated rate of the bond

b. The interest rate currently charged by the entity or by others for similar bond
 c. The interest rate that exactly discounts estimated future cash payments through the expected life of the bond
or when appropriate, a shorter period to the net carrying amount of the bond
d. The basic risk-free interest rate that is derived from observable government bond prices

____ 17. For a bond issue which sells for less than its par value the market rate of interest is

a. Dependent on rate stated on the bond

b. Equal to rate stated on the bond
c. Less than rate stated on the bond
d. Higher than rate stated on the bond

____ 18. What is the market rate of interest for a bond issue which sells for more than its par value?

a. Less than rate stated on the bond

b. Equal to rate stated on the bond
c. Higher than rate stated on the bond
d. Independent of rate stated on the bond

____ 19. If bonds are issued at a premium, this indicates that

a. The yield rate of interest exceeds the nominal rate

b. The nominal rate of interest exceeds the yield rate
c. The yield and nominal rates coincide
d. No necessary relationship exists between the two rates

____ 20. Which of the following is true for a bond maturing on a single date when the effective method of amortizing bond discount is used?

a. Interest expense as a percentage of the bond’s book value varies from period to period
b. Interest expense increases each six-month period
c. Interest expense remains constant each six-month period
d. Nominal interest rate exceeds effective interest rate

____ 21. If bonds are initially sold at a discount and the straight line method of amortization is used, interest expense in the earlier years

a. Will exceed what it would have been had the scientific method of amortization been used
b. Will be less than what it would have been had the scientific method of amortization been used
c. Will be the same as what it would have been had the scientific method of amortization been used
d. Will be less than the coupon rate of interest

____ 22. On January 1 of the current year, an entity issued bonds at a discount. The entity incorrectly used the straight line method instead of the
effective interest method to amortize the discount. How were the following amounts, as of December 31 of the current year affected by
the error?

Bond carrying amount Retained earnings

a. Overstated Overstated
b. Understated Understated
c. Oberstated Understated
d. Understated Overstated

____ 23. On January 1, 2009, an entity issued bonds at a discount. The bonds mature on December 31, 2014. The entity incorrectly used the straight
line method instead of the effective interest method to amortize the discount. How is carrying amount of the bonds affected by the error?

At December 31, 2009 At December 31, 2014

a. Overstated Understated
b. Overstated No effect
c. Understated Overstated
d. Understated No effect
____ 24. A 20-year bond was issued at a premium with a call provision to retire the bonds. When the bond issuer exercised the call provision on an
interest date, the call price exceeded the carrying value of the bonds. The amount of bond liability removed from the accounts should
have equaled the

a. Cash paid
b. Face amount plus unamortized premium
c. Call price plus unamortized premium
d. Current market price

____ 25. A ten-year term bond was issued at a discount with a call provision to retire the bonds. When the bond issuer exercised the call provision on
an interest date, the carrying amount of the bond was less than the call price. The amount of bond liability removed from the accounts
should have equaled the

a. Call price
b. Call price less unamortized discount
c. Face amount less unamortized discount
d. Face amount plus unamortized discount

____ 26. Debentures are

a. Unsecured bonds c. Ordinary bonds

b. Secured bonds d. Serial bonds

____ 27. When the bonds are sold between interest dates, any accrued interest is credited to

a. Interest payable c. Interest receivable

b. Interest revenue d. Bonds payable

____ 28. Which of the following is true of accrued interest on bonds that are sold between interest dates?

a. The accrued interest is computed at the effective rate.

b. The accrued interest will be paid to the seller when the bonds mature.
c. The accrued interest is extra income for the buyer.
d. None of the above.

____ 29. Which of the following is true of a premium on bonds payable?

a. The premium or bonds payable is a contra shareholders’ equity account.

b. The premium on bonds payable is an account that appears only on the books of the investor.
c. The premium on bonds payable increases when amortization entries are made until it reaches its maturity value.
d. The premium on bonds payable decreases when amortization entries are made until its balance reaches zero at
the maturity date.

____ 30. The net amount of a bond liability that appears in the statement of financial position is the

a. Call price of the bond plus bond discount or minus bond premium
b. Face value of the bond plus related discount or minus related premium
c. Face value of the bond plus related discount or minus related premium
d. Maturity value of the bond plus related discount or minus related premium

____ 31. When interest expense is calculated using the effective interest method, interest expense equals the

a. Actual amount of interest paid

b. Book value of the bonds multiplied by the stated interest rate
c. Book value of the bonds multiplied by the effective interest rate
d. Maturity value of the bonds multiplied by the effective interest rate

____ 32. When bonds are redeemed by the issuer prior to their maturity date, any gain or loss on the redemption is
 a. Amortized over the period remaining to maturity and reported as other comprehensive income.
b. Amortized over the period remaining to maturity and reported as part of income from continuing operations.
c. Reported as component of other comprehensive income.
d. Reported as part of income from continuing operations in the period of redemption.

____ 33. When bonds are retired prior to maturity with proceeds from a new bond issue, any gain or loss from the early extinguishment of debt should
be

a. Amortized over the remaining original life of the retired bond issue
b. Amortized over the life of the new bond issue
c. Recognized in retained earnings in the period of extinguishment
d. Recognized in income from continuing operations in the period of extinguishment

____ 34. An entity neglected to amortize the discount on outstanding bonds payable. What is the effect of the failure to record discount amortization
on interest expense and bond carrying value, respectively?

a. Understate and understate

b. Understate and overstate
c. Overstate and overstate
d. Overstate and understate

____ 35. An entity neglected to amortize the premium on outstanding bonds payable. What is the effect of the failure to record premium amortization
on interest expense and bond carrying value, respectively?

a. Understate and understate c. Overstate and overstate

b. Understate and overstate d. Overstate and understate

____ 36. When shares with par value are sold, the proceeds shall be credited to the

a. Share capital account

b. Share premium
c. Retained earnings
d. Share capital account to the extent of the par of the shares issued with any excess being reflected in share
premium

____ 37. When shares without par value are sold, the excess proceeds over stated value shall be credited to

a. Income c. Share premium

b. Retained earnings d. Shar capital

____ 38. If shares are issued for a consideration other than cash, the proceeds shall be measured by the

a. Fair value of the shares issued

b. Par value of the shares issued
c. Fair value of the consideration received
d. Book value of the consideration received

____ 39. In case shares are issued for outstanding liabilities, what is the measure for recording?

a. Par value of the shares issued c. Amount of liabilities set off

b. Fair value of the shares issued d. Book value of the shares issued

____ 40. When shares are issued for services received, the measure is equal to the

a. Fair value of such services c. Book value of the shares issued

b. Par value of the shares issued d. Fair value of the shares issued
____ 41. Treasury shares shall be recorded at cost irrespective of whether these are acquired below or above par value. The cost of treasury shares
acquired for noncash consideration is usually measured by

a. Fair value of the noncash consideration given

b. Recorded amount of the noncash asset surrendered
c. Par value of the shares
d. Book value of the shares

____ 42. The total cost of treasury shares shall be reported as

a. Deduction from shareholders’ equity

b. Asset
c. Deduction from retained earnings
d. Deduction from share premium

____ 43. If treasury shares are reissued for noncash consideration, the proceeds shall be measured by

a. Fair value of the treasury shares

b. Fair value of the noncash consideration received
c. Book value of the noncash consideration received
d. Book value of the treasury shares

____ 44. Which statement is incorrect concerning treasury shares?

a. Treasury shares shall be recorded at cost irrespective of whether acquired below or above par value.
b. The total cost of treasury shares shall be deducted from equity.
c. Treasury shares may be recognized as financial asset.
d. Gain or loss on sale of treasury shares shall not be included in profit or loss.

____ 45. “Loss” from sale of treasury shares shall be charged to

a. Loss on sale of treasury shares to be shown as other expense

b. Retained earnings and then share premium from treasury shares
c. Share premium from treasury shares and then retained earnings
d. Share premium from original issuance, share premium from treasury shares and then retained earnings

____ 46. Gains and losses on retirement of treasury shares shall not be included in determining income. If the retirement results in a gain, such gain
shall be credited to

a. Share premium c. Share capital

b. Retained earnings d. Income

____ 47. Loss on retirement of treasury shares shall be debited to

a. Retained earnings
b. Share premium from treasury shares and then to retained earnings
c. Share premium from treasury shares, share premium from original issuance and then to retained earnings
d. Share premium from original issuance, share premium from treasury shares and then retained earnings.

____ 48. It is issuance by an entity of its own shares to its shareholders without consideration and under conditions indicating that such action is
prompted mainly by a desire to increase the number of shares outstanding for the purpose of effecting a reduction in unit market price.

a. Share split c. Stock dividend

b. Reverse share split d. Recapitalization

____ 49. Subscriptions receivable and other receivables from sale os shares which are not collectible currently shall be presented as
 a. Deduction from the related subscribed share capital in the shareholders’ equity section
b. Current asset
c. Long-term investment
d. Other asset

____ 50. Deposits on subscription to a proposed increase in share capital shall be reported as

a. Part of liabilities c. Memorandum only

b. Part of shareholders’ equity d. Part of retained earnings

____ 51. In accounting for shareholders’ equity, the accountant is primarily concerned with which of the following?

a. Determining the total amount of shareholders’ equity

b. Distinguishing between realized and unrealized revenue
c. Recording the source of each of the various elements of shareholders’ equity
d. Making sure that the directors do not declare dividends in excess of retained earnings

____ 52. Contributed capital does not include

a. Share premium on ordinary and preference shares

b. Preference share capital
c. Capital resulting from reissuance of treasury shares at a price above acquisition price
d. Capital accumulated by retention of earnings

____ 53. Discount on share capital

a. May be recorded as either an asset or an expense

b. Shall be closed to income summary account
c. May be offset against share premium on the same class of share capital
d. None of the above may be done

____ 54. An ordinary shareholder does not possess which of the following?

a. The right to share in the earnings of the corporation when dividends are declared.
b. The right to vote in the election of the board of directors of the corporation.
c. The right to direct owbership of the corporate assets.
d. The right to share proportionately in corporate assets in case of liquidation if such assets exceed the claims of
creditors.

____ 55. Which of the following is not one of the basic rights of a shareholder?

a. The right to participate in earnings.

b. The right to maintain one’s proportional interest in the corporation.
c. The right to participate in the proceeds of the sale of corporate assets upon liquidation of the corporation.
d. The right to inspect the accounting records of the corporation.

____ 56. An entity issued rights to its existing shareholders to purchase unissued ordinary shares at more than par value. Share premium would be
recorded when the rights

a. Expire c. Become exercisable

b. Are exercised d. Are issued

____ 57. Which of the following is issued to shareholders of a corporation to acquire its unissued or treasury shares within a specified time at a
specified price?

a. Share option c. Share dividend

b. Share warrant d. Share subscription
____ 58. Share warrants outstanding shall be reported as

a. Liability c. Share capital

b. Reduction of share premium d. Share premium

____ 59. When the total shareholders’ equity is smaller than the amount of contributed capital, this deficiency is called

a. A net loss c. A liability

b. A dividend d. A deficit

____ 60. The par value of an ordinary share represents

a. The liquidation value of the share

b. The book value of the share
c. The legal nominal value assigned to the share
d. The amount received by the corporation when the share was originally issued

____ 61. When collectibility is reasonably assured, the excess of the subscription price over the stated value of the no par subscribed share capital shall
be recorded as

a. No par share capital

b. Share premium when the subscription is recorded
c. Share premium when the subscription is collected
d. Share premium when the capital is issued

____ 62. The issuance of preference shares

a. Increases preference shares outstanding

b. Has no effecton preference shares outstanding
c. Increases preference shares authorized
d. Decreases preference shares authorized

____ 63. When an entity redeems all of its preference shares for more than the original issue price, the excess paid above the original issue price shall
be

a. Accounted for as loss on exchange in the income statement

b. Charged against share premium of ordinary shares
c. Charged to a discount on preference shares
d. Charged against retained earnings

____ 64. When preference shares are purchased and retired by the issuing entity for less than original issue price, proper accounting for the retirement

a. Increases the amount of dividends available to ordinary shareholders

b. Increases the contributed capital of the ordinary shareholders
c. Increases reported income for the period
d. Increases the treasury shares held by the corporation

____ 65. The purchase of treasury shares

a. Decreases shares authorized c. Decreases shares outstanding

b. Decreases shares issued d. Has no effect on shares outstanding

____ 66. Treasury shares were acquired for cash at more than par value, and then subsequently sold for cash at more than acquisition price. What is the
effect on share premium from treasury shares?

Purchase of Sale of
treasury shares treasury shares
 a. Increase Increase
b. Decrease No effect
c. No effect Increase
d. No effect No effect

____ 67. Which of the following statements best describes the net effect on retained earnings of the purchase and subsequent sale of treasury shares?

a. Retained earnings may never be increased but sometimes decreased.

b. Retained earnings may never be increased or decreased.
c. Retained earnings sometimes may be increased but never be decreased.
d. Retained earnings account is always affected unless the selling price is exactly equal to cost

____ 68. At the date of the financial statements, shares issued would exceed shares outstanding as a result of

a. Declaration of share split c. Purchase of treasury shares

b. Declaration of a stock dividend d. Payment in full of subscribed shares

____ 69. What is the accounting for treasury shares?

a. On repurchase of treasury shares, a gain or loss is recognized equal to the difference between the amount at which the
shares were issued and the repurchase price for the shares.
b. On reissuance of treasury shares, a gain or loss is recognized equal to te difference between the previous repurchase
price and the reissuance price.
c. On repurchase or reissuance of previously repurchased own shares, no gain or loss is recognized.
d. Treasury shares are accounted for as financial assets.

____ 70. How would a share split in which the par vlue per share decreases in proportion to the number of addition shares issued affect each of the
following?

Share premium Retained earnings

a. Increase No effect
b. No effect No effect
c. No effect Decrease
d. Increase Decrease

CHAPTER 5

5-26

1. Most corporate bonds are. B. debenture bonds

2. The method used to pay interest depends on whether the bonds are. A. registered or coupon
3. Zero-coupon bonds. A. offer a return in the form of a deep discount off the face amount
4. To evaluate the risk and quality of an individual bond issue, investors rely heavily on. A. bond
ratings provided by investment houses
5. Bonds payable should be reported as noncurrent at. A. face amount less any unamortized
discount or plus any unamortized premium
6. The discount on bonds payable is reported as. D. a contra liability
7. In the amortization schedule for discount on bonds payable. B. the total effective interest over
the term to maturity is equal to the amount of the discount plus the total cash interest paid
8. An amortization schedule for bonds issued at a premium. C. is a schedule that reflects the
changes in the bonds payable over the term to maturity.
 9. When bonds are retired prior to maturity date. B. the issuer probably will report an ordinary
gain or loss
10. An entity has bonds outstanding during a year in which the market rate of interest has risen. The
entity elected the fair value option. What will the entity report for the year? A. interest expense
and a gain

5-27

1. Bonds that mature on a single date are called. A. Term bonds

2. Bonds issued with scheduled maturities at various dates are called. C. serial bonds
3. Debentures are. A. unsecured bonds
4. How would the amortization of premium on bonds payable affect the carrying amount of bond
and net income, respectively? D. decrease and increase
5. How would the amortization of discount on bonds payable affect the carrying amount of bond
and net income, respectively? A. increase and decrease
6. Unamortized bond discount should be reported as. A. direct deduction from the face amount of
the bond.
7. 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. D. increased by accrued interest
from may 1 to june 1
8. The issuer of a bond sold at face amount with interest payable February 1 and august 1 should
report. A. liability for accrued interest
9. A bond issued on june 1 has interest payment dates of april 1 and October 1. Bond interest
expense for the current year ended december 31 is for a period of. D. seven months
10. A bond was issued at a discount with a call provision. When the bond issuer exercised the call
provision on an interest date, the amount of bond liability derecognized should have equaled
the. C. face amount less unamortized discount

CHAPTER 6

6-28

1. What is the interest rate written on the face of the bond? D. coupon rate, nominal rate or stated
rate
2. What is the rate of interest actually incurred? B. market yield or effective rate
3. When the effective interest method is used, the periodic amortization would. D. increase if the
bonds were issued at either a discount or a premium
4. The discount on bond payable is charged to interest expense. C. using the effective interest
method
5. Bond issue cost. D. all of these relate to bond issue cost.
6. Under the effective interest method of amortization, the interest expense is equal to. D. the
market rate of interest multiplied by the beginning carrying amount of the bonds.
 7. When interest expense for the current year is more than interest paid, the bond were issued at.
A. a discount
8. When interest expense for the current year is less than interest paid, the bonds were issued at.
B. a premium
9. Bonds usually sell at. C. present value
10. Which statement is true about bonds payable? A. the specific provisions of a bond issue are
described in a document called bond indenture.

6-29

1. When bonds are sold at a premium and the effective interest method is used, at each
subsequent interest payment date, the cash paid is. C. greater than the effective interest
2. When bonds are sold at a discount and the effective interest method is used, at each subsequent
interest payment date, the cash paid is. B. less than the effective interest
3. When bonds are sold at a discount and the effective interest method is used, at each subsequent
interest payment date, the interest expense. A. increases
4. When bonds are sold at a premium and the effective interest method is used, at each
subsequent interest payment date, the interest expense. D. decreases
5. Interest expense is. A. the effective rate times the carrying amount of the bond during the
interest period.

6-30

1. What is the effective interest rate of a bond measured at amortized cost? C. the interest rate
that exactly discounts estimated future cash payments through the expected life of the bond
or when appropriate, a shorter period to the net carrying amount of the bond.
2. For a bond issue which sells for less than face value, the market rate of interest is. D. higher than
rate stated on the bond
3. What is the market rate of interest for a bond issue which sells for more than face value? A. less
than rate stated on the bond
4. If bonds are issued at a premium, this indicates that. B. the nominal rate exceeds the yield rate
5. Which of the following is true for a bond maturing on a single date when the effective interest
method of amortizing bond discount is used? B. interest expense increases each six-month
period
6. In theory, the proceeds from the sale of a bond will be equal to. B. the present value of the
principal due at the end of the life of the bond plus the present value of the interest payments
made during the life of the bond.
7. The market price of a bond issued at a discount is the present value of the principal amount at
the market rate of interest. C. plus the present value of all future interest payments at the
market rate of interest.
8. Under international accounting standard, the valuation method used for bond payable is. D.
discounted cash flow valuation at yield rate at issuance.
 9. How should an entity calculate the net proceeds to be received from bond issuance? D. discount
the bonds at the market rate of interest and deduct bond issuance cost.
10. An entity issued a bond with a stated rate of interest that is less than the effective interest rate.
The bond was issued on one of the interest payment dates. What should the entity report on the
first payment date? B. an interest expense that is greater than the cash payment made to
bondholders.

CHAPTER 7

7-19

1. What is the principal accounting for a compound financial instrument? B. the issuer shall classify
the liability and equity components of a compound instrument separately as liability or equity
2. How are the proceeds from issuing a compound instrument allocated between the liability and
equity? A. the liability component is measured at fair value, and then the remainder of the
proceeds is allocated to the equity component
3. The proceeds from an issue of bonds with share warrants should not be allocated between the
liability and equity components when. D) the proceeds should be allocated between
liability and equity under all of these circumstances
4. When the cash proceeds from bonds issued with share warrants exceed the fair value of the
bonds without the warrants, the excess should be credited to. D) Share Premium - Share
Warrants
5. When bonds are issued with share warrants, the equity component is equal to. D) the excess of
the proceeds over the fair value of the bonds without the share warrants

7-20

1. A bond convertible by the holder into a fixed number of ordinary shares of the issuer is. A) A
compound financial instrument
2. Convertible bonds. D) May be exchanged for equity shares
3. What is the main reason for issuing convertible bond? C) Entities can obtain financing at
lower rate
4. The major difference between convertible bonds and bonds issued with share warrants is that
upon exercise of the warrants. B) the holder has to pay a certain amount to obtain the
shares
5. Convertible bonds. B. Allow an entity to issue debt financing at lower rate
6. What is accounting for issued convertible bond? A. The instrument should be recorded solely as
bond
7. Issued convertible bonds are. A) separated into liability and equity components with the
liability component recorded at fair value
8. Bondholders exchanged their convertible bonds for ordinary shares. The carrying amount of
these bonds was lower than market value but greater than the par value of the ordinary shares
 issued. If the book value method is used, which of the following correctly states an effect of the
conversion? A) Shareholders' Equity is increased
9. The conversion of bonds payable into ordinary shares commonly recorded by. D. Book Value or
carrying amount method
10. When convertible bond is not converted but paid at maturity.