f2 Theories | Bonds (Finance) | Interest

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An entity shall measure a financial liability not designated at fair value through profit or loss at a. Fair value b. Fair value plus directly attributable transaction costs c. Fair value minus directly attributable transaction costs d. Face amount Transaction costs directly attributable to the issue of a financial liability include all of the ff. Except a. Fees & commissions paid to agents b. Levies by regulatory agencies c. Transfer taxes and duties d. Financing costs The initial fair value of a financial liability is defined as a. Amount for which a liability is settled b. Amount for which a liability is settled in an arm’s length transaction c. Amount for which a liability is settled between knowledgeable and willing parties. d. Amount for which a liability is settled between knowledgeable and willing parties in an arm’s length transaction After initial recognition, an entity shall measure a financial liability at I. Amortized cost using the effective interest method II. Fair value through profit or loss a. I only b. II only c. Either I or II d. Neither I or II Which of the ff statements is true in relation to the fair value option of measuring a financial liability? I. At initial recognition, an entity may irrevocably designate a financial liability at fair value through profit or loss. II. The financial liability is measured at every year-end and any changes in fair value are recognized in profit or loss III. The interest expense on the financial liability is recognized using the effective interest rate. a. I and II only b. I and III Only c. II and III only d. I, II and III It is a marketing scheme whereby an entity grants award credits to customers and the entity can redeem the award credits in exchange for free or discounted goods or services. a. Customer loyalty program b. Premium plan c. Marketing program
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Decrease and no effect c. A retail store received cash and issued a gift certificate that is redeemable in merchandise. Under a customer loyalty program. Shall be recognized initially as deferred revenue and subsequently recognized as revenue upon the redemption of the award credits 10. Decrease and decrease d. Loyalty award 7. Deferred revenue accnt shall be increased c. if the entity supplies the awards itself. A contra accnt to magazine subscriptions rec’ble 2|Page . When the gift certificate was issued. The proportion of the fair value of the award credits relative to the total consideration received from the initial sale of the goods. The entity shall recognize immediately revenue equal to the gross consideration allocated to the award credits 11. Shall be recognized as revenue immediately b. Credits d. A retail store received cash and issued certificates that are redeemable in merchandise. The entity shall recognize initially a deferred revenue equal to the difference between the consideration for the award credits and the amount paid by the entity to the third party d. Points b. Awards c. Fair value of the award credits b. The entity shall not recognize revenue from the award credits b. if a third party supplies the awards and the entity is collecting the consideration for the award credits as principal in the transaction a. a a. Fair value of the goods to be received in exchange d. Royalty 8. c. No effect and no effect b. The consideration allocated to the award credits is measured at a. The gift certificates lapse one year after they are issued. The entity shall recognize initially deferred revenue equal to the gross consideration allocated to the award credits.d. No effect and decrease 12. Deferred revenue accnt shall be decreased b. Carrying amount of goods to be received in exchange c. the consideration allocated to the award credits a. Revenue accnt should be decreased d. respectively? a. Magazine subscriptions collected in advance are treated as a. c. How would the deferred revenue account be affected by the redemption and lapse of certificates. Under a customer loyalty program. The award credits granted to customers under a customer loyalty program is often described as a. Shall be accounted for as revenue separately. Revenue accnt should be decreased 13. Shall be recognized initially as deferred revenue and amortized as revenue over reasonable period not exceeding 5 yrs d. 9.

Noncurrent liability 15. Magazine subscription refund in the income statement in the period collected 14. Sales contract receivable valuation accnt c. Collections received for service contracts shall be recorded as an increase in a. Unearned revenue at the merchandise’s retail price. In the period earned c. At June 30 of the current year. Revenue from the entire proceeds b. Unearned revenue for the entire proceeds 19. an entity sold refundable merchandise coupons. Contra asset account d. Revenue at the cash received 18. At the same time. how should the entity report these coupon transactions? a. an entity received an advance payment of 60% of the sales price for special order goods to be manufactured and delivered within five months. an entity will receive royalties from the assignment of a patent for four years. Position a. Evenly over the life of the royalty agreement d. SHE valuation accnt d. Deferred revenue in the SHE d. the entity subcontracted for production of the special order goods at a price equal to 40% of the main contract price. The advance payment shall be reported in the entity’s statement of fin. At the date of the royalty agreement 17. Under a royalty agreement with another entity. An entity received an advance payment for the special order goods that are to be manufactured and delivered within six months.b. In the period received b. The entity received a certain amount for each coupon redeemable from July 1 to December 31 of the current year. How would the proceeds received from the advance sale of nunrefundable tickets for a theatrical performance be reported in the seller’s financial statements before the performance? a. Deferred revenue accnt b. Service revenue accnt 16. Deferred revenue in liability section c. What liabilities should be reported in the entity’s year-end statement of financial position? 3|Page . At the end of the current year. Unearned revenue at the cash received c. The entity sells appliances on installment contracts but all service contracts must be paid in full at the time of sale. Current liability b. Unearned revenue to the extent of the related costs expended d. for merchandise with a certain retail price. Revenue to the extent of related costs expanded c. Deferred charge c. b. In June of the current year. An entity is a retailer of home appliances and offers a service contract on each appliance sold. Revenue at the merchandise’s retail price d. the royalties received in advance shall be reported as revenue a.

the entity makes service calls at no additional charge. None b. Liabilities. Instead of paying monthly. An entity sells furnaces that include a 3-yr warranty. When should the entity recognize these warranty costs? a. When the machines are sold 21. Plant asset b. Service calls under warrant are performed by an independent mechanic under a contract with the entity. When the service calls are performed c. the entity should recognize the related revenue 4|Page . At what amount should the entity report the warranty liability? a. The present value of expected warranty costs. Revenue in the year collected b. c. Position as a. Statements b. An appropriation of the retained earnings d. The fair value of the contract to settle the warranty services d. Rent revenue collected one year in advance should be reported as a. Current asset 23. When payments are made to the mechanic d. An entity sells appliances that include a three-year warranty. The entity elects the fair value option for reporting fin. Unearned rent revenue would normally appear in the statement of fin. Current liability c. The fair value of the contract less the cost to provide he services 25. an entity visits its customers’ premises and performs insect control services. For a fixed amount a month. Noncurrent liability d. Deferred revenue equal to 60% of the main contract price and payable to subcontractor equal to 40% of the main contract price c. Showing the amount among the liabilities but not extending to the liability total c. For a customer who pays the annual fee in advance. Appropriately classifying them as regular liabilities in the statement of fin. customers may pay a certain annual fee in advance. If customers experience problems within regularly scheduled visits. Deferred revenue equal to 60% of the main contract price and no payable to subcontractor d. Separate item of SHE d. warranty costs are expected to be incurred for each machine sold. Based on experience. The entity can contract with a third party to provide these warranty services. Evenly over the life of the warranty b. The cost of expected warranty services b. Accrued liability 24.a. Current liability c. Note to fin. Estimated liabilities are disclosed in financial statements by a. Position 22. No deferred revenue but payable to subcontractor is reported at 40% of the main contract price 20.

28. The probability that the event will not occur is greater than the probability that the event will occur. Estimated value b. Summation of the minimum and maximum 29. Minimum b. the estimate of the amount a. Reflects the weighting of all possible outcomes by their associated possibilities b. May be the individual most likely outcome adjusted for the effect of other possible outcomes d. c. Evenly over the contract year as the services are performed 26. Is determined as the individual most likely outcome c. The probability that the event will occur is 90% likely. The probability that the event will occur is greater than the probability that the event will not occur. Extrapolation 31. When the provision involves a large population of items. When the provision arises from a single obligation. The name for this statistical method of estimation is a. At the end of the contract year after all of the services have been performed d. An outflow of resources embodying economic benefits its regarded as “probable” when a. Present value c. When the cash is collected b. the estimate of the amount a. The probability that the event will occur is the same as the probability that the event will not occur. d. Is determined as the individual most likely outcome c. Where there is a continuous range of possible outcomes. Midpoint d. and each point in that range is as likely as any other.a. Reflects the weighting of all the possible outcomes by their associated possibilities b. Maximum c. It is an event that creates a legal or constructive obligation because the entity has no other realistic alternative but to settle the obligation a. Is the individual most likely outcome adjusted for the effect of other possible outcomes 5|Page . b. Current value d. Current event 27. Midpoint of the possible outcomes 30. At the end of fiscal year c. the obligation is estimated by “weighting” all possible outcomes by their associated probabilities. Obligating event b. Past event c. Where the provision being measured involves a large population of items. Subsequent event d. the range to be used is the a.

A present obligation that is probable and for which the amount can be reliably measured shall a. Reasonably possible d. it is necessary that the entity has no realistic alternative but to settle the obligation created by the event and this is the case only: I. II. Reasonably possible d. a. Which range means that the future event occurring is very slight? a. Midpoint of the possible outcomes 32. Where the event creates valid expectation in other parties that the entity will discharge the obligation as in the case of constructive obligation a.d. Which of the ff statements is true concerning the measurement of a provision? I. Be accrued by debiting an epense accnt and crediting an appropriated retained earnings accnt d. Probable b. II only d. Probable c. I only c. Certain b. Neither I or II 34. An entity did not record an accrual for a present obligation but disclose the nature of the obligation and the range of the loss. For an event to be an obligating event. Both I and II b. In the income statement. 33. d. Remote 36. How likely is the loss? a. the expense relating to the provision may be presented net of the reimbursement. Where the settlement of the obligation can be enforced by law II. Not be accrued but shall be disclosed in the notes to the financial statements b. The amount of the reimbursement shall not exceed the amount of provision c. Certain 37. The amount recognized as a provision should be the best estimate of the expenditure required to settle the present obligation at the end of reporting period. Be accrued by debiting an expense accnt and crediting a liability acccnt 6|Page . Remote c. Be accrued by debiting an appropriated retained earning accnt and crediting a liability accnt c. The reimbursement shall not be treated as separate asset and therefore “netted” against the estimated liability for the provision. The reimbursement shall be recognized only when it is virtually certain that the reimbursement would be received if the entity settles the obligation b. The likelihood that the future event will or will not occur can be expressed by a range of outcome. The best estimate of the expenditure required to settle the present obligation is the amount that an entity would be rationally pay to settle the obligation at the end of reporting period or to transfer it to a third party at that time. Which statement is incorrect where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party? a. Neither I nor II 35. Either I or II d. I only b. II only c.

A disclosure only 42. Position d. When the occurrence of a contingent asset is probable and its amount can be reliably measured. An entity has a self-insurance plan. The issuer of a 10-yr term bond sold at par 3 yrs ago with interest payable May 1 and November 1 each year. An increase in both expenses and liabilities c. What are the effects of this lawsuit’s probable outcome on the entity’s fin. Statements for the current year? a. Part of the issue cost 44. As a result of an accident in the current year. shall report in its Dec 31 statement of fin. Disclosed but not recognized in the statement of fin. Additional compensation that may be payable on a dispute now being arbitrated d. Each year. The amount can be reliably measured 41. Position of the issuer as a a. Premium offer to customers for labels or box tops b. Recognized in the statement of fin. Classified as an appropriation of RE c. Increase in deferred charges 7|Page . Occurrence is reasonably possible and the amount can be reliably measured c. Neither recognized in the statement of fin. Accommodation endorsement on customer note c. Position and disclosed b. the entity appropriated retained earnings for contingencies in an amount equal to insurance premiums saved less recognized losses from lawsuits and other claims. Pending lawsuit 39. Direct deduction from the face value of the debt b. Occurrence is probable and the amount can be reliably measured d. Realized b. An accrued account b. No effect in either expenses or liabilities 40. 43. Deferred earnings c. An account rec’ble with an additional disclosure explaining the nature of the transaction d. Position a. No effect on expenses and an increase in liabilities d. Deferred charge d. Direct deduction from the PV of the debt c. the contingent asset shall be a. Addition to bonds payable c. Contingent assets are usually recognized when a. the entity is a defendant in a lawsuit which it will probably have to pay the measurable amount of damages. An increase in expenses and no effect on liabilities b. Which of the ff is the proper accntng treatment of a ontingent asset? a. Liability for accrued interest b. An item that is not a contingent liability a. Unamortized debt discount shall be reported in the statement of fin. Position nor disclosed.38.

The face amount of the bond plus the PV of the interest payments made during the life of the bond d. Plus the PV of all the future interest payments at the market rate of interest d. The interest rate currently charged by the entity or by others for similar bond. Historical cost b. c. The stated rate of the bond b. Contingent liability 45. The basic risk-free interest rate rate that is derived from observable government bond prices 51. Seven months 47. Increased by the accrued interest from May 1 to June 1 46. What is the effective interest rate of a bond measured at amortized cost? a. Under the international accounting standard. Four months c. The face amount of bond b. Six months d. The sum of the face amount of the bond and the periodic interest payments 49. Dependent on rate stated on the bond 8|Page .d. Three months b. A bond issued on June 1 of the current year has interest payment dates of April 1 and October 1. The interest rate that exactly discounts estimated future cash payments through the expected life of the bond or when appropriate. Bond interest expense for the current year ended Dec 31 is for a period of a. Increased by the accrued interest from June 1 to Nov 1 d. the market rate of interest is a. a shorter period to the net carrying amount of the bond d. Plus the PV of all future interest payments at the rate of interest stated on he bond 48. the proceeds from the sale of a bond would be equal to a. and a bond issue is sold on June 1. Discounted cash flow valuation at current yield rate c. In theory. Less the PV of all future interest payments at the rate of interest stated on the bond c. Less the PV of all the future interest payments at the market rate of interest b. the valuation method used for bonds payable is a. Discounted cash flow valuation at yield rate at issuance 50. When the interest payment dates of a bond are May 1 and November 1. Maturity value d. the amount of cash received by the issuer will be a. Decreased by the accrued interest from May 1 to June 1 c. The PV of the principal amount due at the end of the life of the bond plus the PV of the interest payments made during the life of the bond c. 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. For a bond issue which sells for less than its face value. Decreased by the accrued interest from June 1 to Nov 1 b.

Independent of rate stated on the bond 53. Decrease Increase 56. The bond was issued on one of the interest payment dates. The yield rate of interest exceeds the nominal rate b. A debit to the unamortized bond discount d. Decrease Decrease d. No necessary rel exists 54. If bonds issued at a premium. Which of the ff is true for a bond maturing on a single date when effective interest method of amortizing bond discount is used? a. Increase Increase c. Less than rate stated on the bond d. An entity issued a bond with a stated rate of interest that is less than the effective interest rate on the date of issuance. Compound financial instrument b. How would the amortization of discount on bonds payable affect each of the ff? CA of bond Net Income a. A primary financial instrument 9|Page . this indicates that a. Decrease Decrease d. The yield and nominal rate coincide d. Decrease Increase 57. Higher than the rate stated on the bond 52. A bond or similar instrument convertible by the holder into a fixed number of ordinary shares of the entity is a. An interest expense that is greater than the cash payment made to bondholders c. Equal to the rate stated on the bond c. An interest expense that is less than the cash payment made to bondholders b. How would the amortization of the premium on bonds payable affect each of the ff? CA of bond Net income a. Interest expense as a percentage of the bond’s carrying mount varies from period to period b. Interest expense remains constant each six-month period d. Increase Increase c. Nominal interest rate exceeds effective interest rate 55. The nominal rate of interest exceeds the yield rate c. Interest expense increases each six-month period c. A debit to the unamortized bond premium 58. What should the entity report on the first interest payment date? a. Higher than rate stated on the bond d. What is the market rate of interest for a bond issue cost which sells for more than its face value? a. Less than rate stated on the bond b.b. Increase Decrease b. Increase Decrease b. Equal to rate stated on the bond c.

A loss is recognized 61. Which of the ff statements is incorrect in relation to the fair value option of measuring note payable? a. If the book value method is used. At initial recognition. A derivative financial instrument d. Under the fair value option. Fair value. An initial recognition. Both I and II b. When the bonds are issued with share purchase warrants a potion of the proceeds should be allocated to equity when the bonds are issued with I. An equity instrument 59. Neither I nor II 60. I only c. an entity may irrevocably designate the note payable as at fair value through other comprehensive income c. The carrying amount of these bonds was lower than the market value but greater than the par value of ordinary shares issued. which of the ff correctly states an effect of the conversion? a. II only d. an entity shall measure the NP initially at a. RE increased. excluding transaction costs 62. Fair value minus transaction costs d. Face amount b. Detachable share purchase warrants II.c. the note payable is remeasured at fair value at every year-end and any changes in fair value are recognized in profit or loss 63. 10 | P a g e . Nondetachable share purchase warrants a. After initial recognition. Bondholders exchange their convertible bonds for the entity’s ordinary shares. Fair value plus transaction costs c. an entity may irrevocably designate the note payable as at fair value through profit or loss b. SHE is increased b. d. The interest expense on the note payable is recognized using the nominal or stated interest rate d. Share premium is decreased c.

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