TOA QUIZZER 2

TOA QUIZZER 2

Multiple ChoiceIdentify 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 bondsb. Serial bonds d. Callable bonds

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

a. Convertible bonds c. Serial bondsb. 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 issuedb. Expensed in the year in which incurredc. Capitalized as organization costd. 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 aa. Direct deduction from the face value of the debtb. Direct deduction from the present value of the debtc. Deferred charged. 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 interestb. Addition to bonds payablec. Increase in deferred chargesd. 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 1b. Decreased by accrued interest from May 1 to June 1c. Increased by accrued interest from June 1 to November 1d. 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 monthsb. 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 bondb. 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 Incomea. Increase                                  Decreaseb. Increase                                  Increasec. Decrease                                Decreased. Decrease                                Increase

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

     Carrying value of bond          Net Incomea. Increase                                    Decreaseb. Increase                                    Increasec. Decrease                                  Decreased. Decrease                                  Increase

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

a. Historical costb. Discounted cash flow valuation at current yield ratec. Maturity amountd. 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, 2008b. Higher than the carrying amount at January 1, 2008c. Higher than the carrying amount at December 31, 2010d. 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 payableb. Entirely as shareholders’ equityc. Partly as unearned revenue and partly as bonds payabled. 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 bondb. The interest rate currently charged by the entity or by others for similar bondc. 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 bondb. Equal to rate stated on the bond

c. Less than rate stated on the bondd. 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 bondb. Equal to rate stated on the bondc. Higher than rate stated on the bondd. 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 rateb. The nominal rate of interest exceeds the yield ratec. The yield and nominal rates coincided. 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 periodc. Interest expense remains constant each six-month periodd. 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 earningsa. Overstated                         Overstatedb. Understated                        Understatedc. Oberstated                          Understatedd. 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, 2014a. Overstated                             Understatedb. Overstated                             No effectc. Understated                           Overstatedd. 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 paidb. Face amount plus unamortized premiumc. Call price plus unamortized premiumd. 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 priceb. Call price less unamortized discountc. Face amount less unamortized discountd. Face amount plus unamortized discount

____  26.   Debentures are

a. Unsecured bonds c. Ordinary bondsb. 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 receivableb. 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 premiumb. Face value of the bond plus related discount or minus related premiumc. Face value of the bond plus related discount or minus related premiumd. 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 paidb. Book value of the bonds multiplied by the stated interest ratec. Book value of the bonds multiplied by the effective interest rated. 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 issueb. Amortized over the life of the new bond issuec. Recognized in retained earnings in the period of extinguishmentd. 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 understateb. Understate and overstatec. Overstate and overstated. 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 overstateb. 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 accountb. Share premiumc. Retained earningsd. 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 premiumb. 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 issuedb. Par value of the shares issuedc. 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 offb. 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 issuedb. 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 givenb. Recorded amount of the noncash asset surrenderedc. Par value of the sharesd. Book value of the shares

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

a. Deduction from shareholders’ equityb. Assetc. Deduction from retained earningsd. 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 sharesb. Fair value of the noncash consideration receivedc. 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 expenseb. Retained earnings and then share premium from treasury sharesc. Share premium from treasury shares and then retained earningsd. 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 capitalb. Retained earnings d. Income

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

a. Retained earningsb. Share premium from treasury shares and then to retained earningsc. Share premium from treasury shares, share premium from original issuance and

then to retained earningsd. 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 dividendb. 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 assetc. Long-term investmentd. Other asset

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

a. Part of liabilities c. Memorandum onlyb. 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’ equityb. Distinguishing between realized and unrealized revenuec. Recording the source of each of the various elements of shareholders’ equityd. 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 sharesb. Preference share capitalc. Capital resulting from reissuance of treasury shares at a price above acquisition

priced. Capital accumulated by retention of earnings

____  53.   Discount on share capital

a. May be recorded as either an asset or an expenseb. Shall be closed to income summary accountc. May be offset against share premium on the same class of share capitald. 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 exercisableb. 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 dividendb. Share warrant d. Share subscription

____  58.   Share warrants outstanding shall be reported as

a. Liability c. Share capitalb. 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 liabilityb. A dividend d. A deficit

____  60.   The par value of an ordinary share represents

a. The liquidation value of the shareb. The book value of the sharec. The legal nominal value assigned to the shared. 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 capitalb. Share premium when the subscription is recordedc. Share premium when the subscription is collectedd. Share premium when the capital is issued

____  62.   The issuance of preference shares

a. Increases preference shares outstandingb. Has no effecton preference shares outstandingc. Increases preference shares authorizedd. 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 statementb. Charged against share premium of ordinary sharesc. Charged to a discount on preference sharesd. 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 shareholdersb. Increases the contributed capital of the ordinary shareholdersc. Increases reported income for the periodd. Increases the treasury shares held by the corporation

____  65.   The purchase of treasury shares

a. Decreases shares authorized c. Decreases shares outstandingb. 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                   Increaseb. Decrease                 No effectc. No effect                 Increased. 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 sharesb. 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 effectb. No effect               No effectc. No effect               Decreased. Increase                Decrease

TOA QUIZZER 2Answer Section

MULTIPLE CHOICE

            1.   A

            2.   C

            3.   D

            4.   A

            5.   A

            6.   D

            7.   D

            8.   C

            9.   B

          10.   D

          11.   A

          12.   D

          13.   C

          14.   A

          15.   D

          16.   C

          17.   D

          18.   A

          19.   B

          20.   B

          21.   A

          22.   C

          23.   B

          24.   B

          25.   C

          26.   A

          27.   A

          28.   D

          29.   D

          30.   B

          31.   C

          32.   D

          33.   D

          34.   A

          35.   C

          36.   D

          37.   C

          38.   C

          39.   C

          40.   A

          41.   B

          42.   A

          43.   B

          44.   C

          45.   C

          46.   A

          47.   D

          48.   A

          49.   A

          50.   B

          51.   C

          52.   D

          53.   D

          54.   C

          55.   D

          56.   B

          57.   B

          58.   D

          59.   D

          60.   C

          61.   B

          62.   A

          63.   D

          64.   B

          65.   C

          66.   C

          67.   A

          68.   C

          69.   C

          70.   B