IAsgn8.docx
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IAsgn8.docx
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IAsgn8
LESSON8
Assignment
Question1(22½marks)
Multiplechoice(1½markseach)
a.Whichofthefollowingbestdescribesthedefendant’saccountingorreportingforanunresolvedlawsuit?
1)Anestimatedliabilityshouldberecordedonthebalancesheet.
2)Itshouldalwaysberecordedintheincomestatementandbalancesheet.
3)Itshouldalwaysbedisclosedinthenotestothefinancialstatements.
4)Itshouldberecordedifpaymentisprobableandtheamountcanreasonablybeestimated.
1)Incorrect.Referto(4).
2)Incorrect.Referto(4).
3)Incorrect.Referto(4).
4)Correct.Anunresolvedlawsuitshouldberecordedinthedefendant’saccountingrecordsifapaymentisprobableandtheamountcanreasonablybeestimated.Ifapaymentisprobablybutcannotbereasonablyestimatedthenitshouldbedisclosedinthenotestothefinancialstatements.
b.Howshouldobligationsthatarenotexpectedtobepaidwithinoneyearbereported?
1)Ascurrentassets
2)Ascurrentliabilities
3)Aslong-termliabilities
4)Asoperatingcycleliabilities
1)Incorrect.Currentassetsarenotobligations(orliabilities).
2)Incorrect.Currentliabilitiesarethosethataretobepaidwithinoneyearoroneaccountingcyclewhicheverislonger.
3)Correct.Obligations(orliabilities)thatarenotexpectedtobepaidwithinoneyearshouldbereportedaslong-termliabilities.
4)Incorrect.Operatingcycleliabilitiesimplycurrentliabilitieswhicharepaidwithinoneyearoronecycle.
c.Whatdoesabondtradedat971/2mean?
1)Thebondpays2.5%interest.
2)Thebondiscurrentlytradedat€1,025per€1,000bond.
3)Themarketrateofinterestis2.5%.
4)Themarketinterestrateisgreaterthanthebondcouponrate.
1)Incorrect.Thebondpays2.5%interest.
2)Incorrect.Thebondiscurrentlytradedat€1,025per€1,000bond.
3)Incorrect.Themarketrateofinterestis2.5%.
4)Correct.Themarketinterestrateisgreaterthanthebondcouponrate.
d.Whatdoesabondtradedat1021/2mean?
1)Thebondpays2.5%interest.
2)Thebondiscurrentlytradedat€1,025per€1,000bond.
3)Themarketrateofinterestis2.5%.
4)Themarketinterestrateisgreaterthanthebondcouponrate.
1)Incorrect.Thecontract(orcoupon)ratedescribestheinterestpaidonabond.
2)Correct.Abondtradingat1021/2meansthebondiscurrentlytradedat€1,025per€1,000bond.
3)Incorrect.Themarketrateofinterestdeterminesthetradingpriceofabondbutitisnotcalculatedasthe1021/2less100.
4)Incorrect.Ifabondistradingat1021/2,themarketinterestrateislowerthanthebondcoupon(orcontract)rate.
e.Whichofthefollowingistrueofadiscountonbondspayable?
1)Occurswhenacompanyissuesbondsformorethantheparvalue
2)Occurswhenacompanyissuesbondsandthemarketrateislessthanthecontractrate
3)Isconsideredtobeacontraliability
4)Isdebitedoneachinterestpaymentdate
1)Incorrect.Adiscountonbondspayableoccurswhenacompanyissuesbondsforlessthantheparvalue.
2)Incorrect.Adiscountonbondspayableoccurswhenacompanyissuesbondsandthemarketrateisgreaterthanthecontract(orcoupon)rate.
3)Correct.TheDiscountonbondspayableaccountisconsideredtobeacontraliability.
4)Incorrect.TheDiscountonbondspayableaccountiscreditedoneachinterestpaymentdate.
f.Whichofthefollowingphrasesaccuratelydescribestheeffectiveinterestratemethod?
1)Allocatesbondinterestexpenseusingachanginginterestrate
2)Allocatesbondinterestexpenseusingaconstantinterestrate
3)Allocatesadecreasingamountofinterestoverthelifeofadiscountedbond
4)Allocatesinterestusingthecurrentmarketrate
1)Incorrect.Thestraight-lineinterestmethodallocatesbondinterestexpenseusingachanginginterestrate.
2)Correct.Theeffectiveinterestratemethodallocatesbondinterestexpenseusingaconstantinterestrate.
3)Incorrect.Theeffectiveinterestmethodallocatesanincreasingamountofinterestoverthelifeofadiscountedbond.
4)Incorrect.Theeffectiveinterestmethodallocatesinterestusingthemarketrateineffectonthedatethebondwasissued.
g.Adidasissued€200,000,10-year,8%,semi-annualbonds.Themarketrateontheissuedatewas7.5%.Adidasreceived€206,948inproceeds.Whichofthefollowingstatementsiscorrect?
1)Adidasmustpay€200,000atmaturity.
2)Adidasmustpay20interestpaymentsof€8,000eachsemi-annualperiodplus€200,000atmaturity.
3)Adidasmustpay€206,948atmaturity.
4)Adidasmustpay20interestpaymentsof€8,000eachsemi-annualperiodplus€206,948atmaturity.
1)Incorrect.Referto
(2).
2)Correct.Adidasmustpay20interestpaymentsof€8,000eachsemi-annualperiodplus€200,000atmaturity.
3)Incorrect.Referto
(2).
4)Incorrect.Referto
(2).
h.Acompanyhas€100,000(parvalue)ofbondsoutstanding.Theunamortizeddiscountonthesebondsis€4,500.Thecompanyredeemedthesebondsfor97%ofpar.Whatwasthegain(loss)ontheredemption?
1)€(1,500)
2)€(3,000)
3)€1,500
4)€3,000
1)Correct.Thelossonredemptionwas€(1,500)*calculatedas:
cashpaidof€97,000(=€100,000×97%)plustheunamortizeddiscountof€4,500=€101,500lessthe€100,000parvalueofthebond=alossof€1,500.
2)Incorrect.Referto
(1).
3)Incorrect.Referto
(1).
4)Incorrect.Referto
(1).
*Thismaybeclarifiedbyreviewingtheactualjournalentry:
Bondspayable100,000
Lossonredemptionofbond1,500
Cash97,000
Discountonbondspayable4,500
i.ZeroIndustrialInc.retiresitsbondsat105onJanuary1immediatelyfollowingthepaymentofsemi-annualinterest.Thecarryingvalueofthebondsattheredemptiondateis€103,745(€100,000facevalue).Zero’sjournalentrytorecordtheredemptionwillincludewhichofthefollowing?
1)DebittoPremiumonBonds
2)CredittoPremiumonBonds
3)DebittoDiscountonBonds
4)CredittoGainonRetirementofBonds
1)Correct.Zero’sjournalentrytorecordtheredemptionwillincludeadebittoPremiumonBonds.Thecompletejournalentrywouldbeasfollows:
Bondspayable100,000
Premiumonbondspayable3,745
Lossonredemptionofbond1,255
Cash105,000
2)Incorrect.Referto
(1).
3)Incorrect.Referto
(1).
4)Incorrect.Referto
(1).
j.OnSeptember30,a€30,000,6%,3-yearinstalmentnotepayableisrecordedbytheBakerCompany.Thenoterequiresthat€10,000ofprincipalplusaccruedinterestbepaidattheendofeachyear(September30).Thejournalentrytorecordthesecondannualpaymentwouldincludewhichofthefollowing?
1)AdebittoInterestExpensefor€1,800
2)AdebittoInterestExpensefor€1,200
3)AcredittoCashfor€11,800
4)AcredittoCashfor€10,000
1)Incorrect.Referto
(2).
2)Correct.ThejournalentrytorecordthesecondannualpaymentwouldincludeadebittoInterestExpensefor€1,200.Thecompletejournalentrywouldbeasfollows:
Notepayable10,000
Interestexpense1,200
Cash11,200
€30,000€10,000=€20,0006%=€1,200
3)Incorrect.Referto
(2).
4)Incorrect.Referto
(2).
k.IfonDecember31,20X6,AstaCorporationborrowed€65,000bysigninga5-year,14%instalmentnoterequiringannualpayments(onDecember31)ofaccruedinterestplusequalamountsofprincipal,whatjournalentrywouldrecordthefirstpaymentonDecember31,20X7?
1)InterestExpense1,820.00
NotesPayable13,000.00
Cash14,820.00
2)NotesPayable14,820.00
InterestPayable1,820.00
Cash13,000.00
3)InterestExpense9,100.00
NotesPayable13,000.00
Cash22,100.00
4)NotesPayable13,000.00
Cash13,000.00
1)Incorrect.Referto(3).
2)Incorrect.Referto(3).
3)Correct.
InterestExpense9,100.00
NotesPayable13,000.00
Cash22,100.00
4)Incorrect.Referto(3).
l.BarnesCompanyissues€750,000,9%,20-year,semi-annualbonds.Thecurrentmarketrateis8.5%.Whatisthetotalamountofinterestowedtothebondholdersforthesemi-annualinterestpayment?
1)€67,500
2)€63,750
3)€37,500
4)€33,750
1)Incorrect.Referto(4).
2)Incorrect.Referto(4).
3)Incorrect.Referto(4).
4)Correct.€750,0009%6/12=€33,750
m.Filaissued€100,000of5-year,7%bonds.Thecurrentmarketratewas7.5%.Filareceived€97,947forthebonds.Usingthestraight-linemethodofinterestamortization,whatwastheamountofinterestexpenseforthefirstsemi-annualpayment?
1)€3,500.00
2)€3,705.30
3)€3,673.01
4)€3,428.15
1)Incorrect.Referto
(2).
2)Correct.€100,0007%6/12=€3,500.00+(€2,053totaldiscount 10 = €205.30)=€3,705.30
3)Incorrect.Referto
(2).
4)Incorrect.Referto
(2).
n.Aviasells€100,000ofits9%bondsatparonApril1,whichis4monthsaftertheoriginaldate.WhatistheunearnedinterestthatAviashouldcollectfromthebuyer?
1)€750
2)€5,250
3)€1,500
4)€3,000
1)Incorrect.Referto(4).
2)Incorrect.Referto(4).
3)Incorrect.Referto(4).
4)Correct.TheunearnedinterestthatAviashouldcollectfromthebuyeris€3,000calculatedas€100,0009%4/12=€3,000.
o.Instalmentnotespayablethatrequirepaymentsofaccruedinteresttodateplusequalamountsofprincipalresultinwhichofthefollowing?
1)Periodicpaymentsthatgraduallydecreaseinamount
2)Equalperiodicpayments
3)Periodicpaymentsthatgraduallyincreaseinamount
4)Increasingamountsofinteresteachperiod
1)Correct.Installmentnotespayablethatrequirepaymentsofaccruedinteresttodateplusequalamountsofprincipalresultinperiodicpaymentsthatgraduallydecreaseinamount.
2)Incorrect.Installmentnotespayablethatrequireequalperiodicpaymentsincludeincreasingamountsofprincipalanddecreasi
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