Sie sind auf Seite 1von 11

Name: ____________________________________________________

Subject: Accounting 004

Date: _____________________________
Class Schedule: TTh (9:00-12:00nn)

Theory of Accounts
Instruction: Read, understand, and analyze each questions or statements carefully. You are to select the BEST answer from among the
choices given. Place answers on the answer sheet provided. Strictly no erasures allowed.
1.

The information provided by financial reporting pertains to


a. individual business enterprises, rather than to industries or an economy as a whole or to members of society as consumers.
b. business industries, rather than to individual enterprises or an economy as a whole or to members of society as consumers.
c. individual business enterprises, industries, and an economy as a whole, rather than to members of society as consumers.
d. an economy as a whole and to members of society as consumers, rather than to individual enterprises or industries.

2.

The following are part of the "due process" system used by the FASB in the evolution of a typical FASB Statement of Financial
Accounting Standards:
1.
Exposure Draft
2.
Statement of Financial Accounting Standards
3.
Preliminary Views
The chronological order in which these items are released is as follows:
a. 1,2,3
c. 2,3,1
b. 1,3,2
d. 3,1,2
e.
What is "expectation gap"?
a. The difference between what the accountant is doing and what the Courts say the accountant should be doing.
b. The difference between what the public thinks the accountant is doing and what Congress says the accountant is doing.
c. The difference between what the public thinks the accountant is doing and what the accountant thinks they can do.
d. The difference between what the public thinks the accountant is not doing and what the accountant knows they don't do.
f.
In the conceptual framework for financial reporting, what provides "the why"--the purpose of accounting?
a. Elements of financial statements
b. Objective of financial reporting
c. Qualitative characteristics of accounting information
d. Recognition, measurement, and disclosure concepts such as assumptions, principles, and constraints
g.
Company A issuing its annual financial reports within one month of the end of the year is an example of which ingredient of
fundamental quality of accounting information?
a. Completeness
c. Predictive Value
b. Neutrality
d. Timeliness
e.
Information about different companies and about different periods of the same company can be prepared and presented in a similar
manner. Comparability and consistency are related to which of these objectives?
a.
Comparability
Consistency
b. companies
companies
c. companies
periods
d. periods
companies
e. periods
periods
f.
One of the elements of financial statements is comprehensive income. As described in Statement of Financial Accounting Concepts
No. 6, "Elements of Financial Statements," comprehensive income is equal to
a. revenues minus expenses plus gains minus losses.
b. revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners.
c. revenues minus expenses plus gains minus losses plus investments by owners minus distributions to owners plus assets minus
liabilities.
d. none of these.
e.
According to the FASB's conceptual framework, the process of reporting an item in the financial statements of an entity is
a. recognition.
c. allocation.
b. realization.
d. matching.
e.
Adjustments are often prepared
a. after the balance sheet date, and dated after the balance sheet date.
b. after the balance sheet date, but dated as of the balance sheet date.
c. before the balance sheet date, and dated after the balance sheet date.
d. before the balance sheet date, but dated as of the balance sheet date.

3.

4.

5.

6.

7.

8.

9.

10. An optional step in the accounting cycle is the preparation of


a. a post-closing trial balance.
c. adjusting entries.
b. a statement of cash flows.
d. closing entries.
e.
11. All of the following may be included under the heading of "cash" except
a. checking account balance.
c. money market funds.
b. currency.
d. savings account balance.
e.
12. Under which section of the balance sheet is "cash restricted for plant expansion" reported?
a. Current assets.
c. Non-current assets.
b. Current liabilities.
d. Stockholders equity.
e.
13. The journal entries for a bank reconciliation
a. are taken from the "balance per bank" section only.
b. may include a credit to Accounts Receivable for an NSF check.
c. may include a debit to Accounts Payable for an NSF check.
d. may include a debit to Office Expense for bank service charges.
e.
14. Which of the following should be recorded in Accounts Receivable?
a. Receivables from officers
c. Dividends receivable
b. Receivables from subsidiaries
d. None of these
e.
15. Which of the following methods of determining annual bad debt expense best achieves the matching concept?
a. Percentage of sales
c. Percentage of average accounts receivable
b. Percentage of ending accounts receivable
d. Direct write-off
16.
17. At the beginning of 2011, Gannon Company received a three-year zero-interest-bearing P1,000 trade note. The market rate for
equivalent notes was 8% at that time. Gannon reported this note as a P1,000 trade note receivable on its 2011 year-end statement of
financial position and P1,000 as sales revenue for 2011. What effect did this accounting for the note have on Gannon's net earnings for
2011, 2012, 2013, and its retained earnings at the end of 2013, respectively?
a. Overstate, overstate, understate, zero
b. Overstate, understate, understate, understate
c. Overstate, overstate, overstate, overstate
d. None of these
18.
19. Under the allowance method of recognizing uncollectible accounts, the entry to write off an uncollectible account
a. decreases net income.
b. has no effect on net income.
c. has no effect on the allowance for uncollectible accounts.
d. increases the allowance for uncollectible accounts.
20.
21. When should a transfer of receivables be recorded as a sale?
a. The transferee has the right to pledge or exchange the transferred assets.
b. The transferor does not maintain effective control over the transferred assets through an agreement to repurchase or redeem
them prior to their maturity.
c. The transferred assets are isolated from the transferor.
d. All of the above.
22.
23. Which of the following is a characteristic of a perpetual inventory system?
a. Cost of goods sold is determined as the amount of purchases less the change in inventory.
b. Cost of goods sold is recorded with each sale.
c. Inventory purchases are debited to a Purchases account.
d. Inventory records are not kept for every item.
24.
25. In a period of rising prices, the inventory method which tends to give the highest reported inventory is
a. last-in, first-out.
c. first-in, first-out.
b. moving average.
d. weighted average.
e.
26. Which of the following items should be included in a company's inventory at the balance sheet date?
a. Goods in transit which were purchased f.o.b. destination.
b. Goods received from another company for sale on consignment.
c. Goods sold to a customer which is being held for the customer to call for at his or her convenience.
d. None of these.
e.
f.

27. When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the term "market"?
a. Current replacement cost
c. Net realizable value
b. Discounted present value
d. Net realizable value less a normal profit margin
28.
29. Which statement is not true about the gross profit method of inventory valuation?
a. It may be used by auditors.
b. It may be used to estimate inventories for annual statements.
c. It may be used to estimate inventories for interim statements.
d. None of these.
30.
31. To produce an inventory valuation which approximates the lower of cost or market using the conventional retail inventory method,
the computation of the ratio of cost to retail should
a. ignore both markups and markdowns.
b. include markdowns but not markups.
c. include markups and markdowns.
d. include markups but not markdowns.
32.
33. In 2012, DCR Manufacturing signed a contract with a supplier to purchase raw materials in 2013 for P700,000. Before the December
31, 2012 balance sheet date, the market price for these materials dropped to P510,000. The journal entry to record this situation at
December 31, 2012 will result in a credit that should be reported
a. as a current liability.
b. as a valuation account to Inventory on the balance sheet.
c. as an appropriation of retained earnings.
d. on the income statement.
34.
35. Which of the following is a product cost as it relates to inventory?
a. Abnormal spoilage.
c. Raw materials.
b. Interest costs.
d. Selling costs.
36.
37. Unrealized holding gains or losses which are recognized in income are from securities classified as
a. available-for-sale.
c. trading.
b. held-to-maturity.
d. none of these.
e.
38. A requirement for a security to be classified as held-to-maturity is
a. ability to hold the security to maturity.
c. the security must be a debt security.
b. positive intent.
d. all of these are required.
e.
39. APB Opinion No. 21 specifies that, regarding the amortization of a premium or discount on
a. effective-interest method of allocation must be used.
b. effective-interest method of allocation should be used but other methods can be applied if there is no material difference in
the results obtained.
c. par value method must be used and therefore no allocation is necessary.
d. straight-line method of allocation must be used.
e.
40. When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies?
a. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over
the investee.
b. The investor should always use the equity method to account for its investment.
c. The investor should always use the fair value method to account for its investment.
d. The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to
exercise "significant influence" over the investee.
e.
41. When an investment in a held-to-maturity security is transferred to an available-for-sale security, the carrying value assigned to the
available-for-sale security should be
a. its fair value at the date of the transfer.
b. its original cost.
c. the higher of its original cost or its fair value at the date of the transfer.
d. the lower of its original cost or its fair value at the date of the transfer.
e.
42. Which of the following are considered equity securities?
I. Convertible debt. II. Redeemable preferred stock. III. Call or put
options.
a. I and II only
c. II only
b. I and III only
d. III only
e.

43. JR Corporation accounts for its investment in the common stock of Sells Company under the equity method. JR Corporation should
ordinarily record a cash dividend received from Sells as
a. a reduction of the carrying value of the investment.
b. additional paid-in capital.
c. an addition to the carrying value of the investment.
d. dividend income.
e.
44. When investments in debt securities are purchased between interest payment dates, preferably the
a. accrued interest is debited to Interest Expense.
b. accrued interest is debited to Interest Receivable.
c. accrued interest is debited to Interest Revenue.
d. securities account should include accrued interest.
e.
45. When a company has acquired a "passive interest" in another corporation, the acquiring company should account for the investment
a. by consolidation.
c. by using the equity method.
b. by using the effective interest method.
d. by using the fair value method.
46.
47. Which of the following is correct about the effective-interest method of amortization?
a. Amortization of a discount decreases from period to period.
b. Amortization of a premium decreases from period to period.
c. The effective-interest method produces a constant rate of return on the book value of the investment from period to period.
d. The effective interest method applied to investments in debt securities is different from that applied to bonds payable.
48.
49. Which of the following is not a major characteristic of a plant asset?
a. Acquired for resale
c. Possesses physical substance
b. Acquired for use
d. Yields services over a number of years
e.
50. Cotton Hotel Corporation recently purchased Emporia Hotel and the land on which it is located with the plan to tear down the
Emporia Hotel and build a new luxury hotel on the site. The cost of the Emporia Hotel should be
a. capitalized as part of the cost of the land.
b. capitalized as part of the cost of the new hotel.
c. depreciated over the period from acquisition to the date the hotel is scheduled to be torn down.
d. written off as an extraordinary loss in the year the hotel is torn down.
e.
51. Which of the following costs are capitalized for self-constructed assets?
a. Labor and overhead only
c. Materials and overhead only
b. Materials and labor only
d. Materials, labor, and overhead
e.
52. When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to
a. a cost of capital charge for stockholders' equity.
b. that portion of average accumulated expenditures on which no interest cost was incurred.
c. that portion of total interest cost which would not have been incurred if expenditures for asset construction had not been
made.
d. the total interest cost actually incurred.
e.
53. Which of the following is the recommended approach to handling interest incurred in financing the construction of property, plant and
equipment?
a. Capitalize interest costs equal to the prime interest rate times the estimated cost of the asset being constructed.
b. Capitalize no interest during construction.
c. Capitalize only the actual interest costs incurred during construction.
d. Charge construction with all costs of funds employed, whether identifiable or not.
e.
54. The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were
a. greater than book value.
c. less than book value.
b. greater than cost.
d. less than current fair value.
e.
55. An improvement made to a machine increased its fair value and its production capacity by 25% without extending the machine's useful
life. The cost of the improvement should be
a. allocated between accumulated depreciation and the machine account.
b. capitalized in the machine account.
c. debited to accumulated depreciation.
d. expensed.
e.
f.
g.

56. Which of the following most accurately reflects the concept of depreciation as used in accounting?
a. The process of charging the decline in value of an economic resource to income in the period in which the benefit occurred.
b. The process of allocating the cost of tangible assets to expense in a systematic and rational manner to those periods expected
to benefit from the use of the asset.
c. A method of allocating asset cost to an expense account in a manner which closely matches the physical deterioration of the
tangible asset involved.
d. An accounting concept that allocates the portion of an asset used up during the year to the contra asset account for the
purpose of properly recording the fair market value of tangible assets.
e.
57. Which of the following is not one of the basic questions that must be answered before the amount of depreciation charge can be
computed?
a. What is the asset's useful life?
b. What is the depreciation base to use for the asset?
c. What method of cost apportionment is best for this asset?
d. What product or service is the asset related to?
e.
58. A graph is set up with "yearly depreciation expense" on the vertical axis and "time" on the horizontal axis. Assuming linear
relationships, how would the graphs for straight-line and sum-of-the-years'-digits depreciation, respectively, be drawn?
a. Horizontally and sloping down to the right
c. Vertically and sloping down to the right
b. Horizontally and sloping up to the right
d. Vertically and sloping up to the right
e.
59. Lynch Printing Company determines that a printing press used in its operations has suffered a permanent impairment in value because
of technological changes. An entry to record the impairment should
a. include a credit to the equipment account.
b. include a credit to the equipment accumulated depreciation account.
c. not be made if the equipment is still being used.
d. recognize an extraordinary loss for the period.
e.
60. Of the following costs related to the development of natural resources, which one is not a part of depletion cost?
a. Acquisition cost of the natural resource deposit
b. Exploration costs
c. Intangible development costs such as drilling costs, tunnels, and shafts
d. Tangible equipment costs associated with machinery used to extract the natural resource
e.
61. Dividends representing a return of capital to stockholders are not uncommon among companies which
a. recognize both functional and physical factors in depreciation.
b. use accelerated depreciation methods.
c. use straight-line depreciation methods.
d. none of these.
e.
62. Which of the following is not a difference between the accounting treatment for depreciation and cost depletion?
a. Depletion applies to natural resources while depreciation applies to plant and equipment.
b. Depletion refers to the physical exhaustion or consumption of the asset while depreciation refers to the wear, tear, and
obsolescence of the asset.
c. Many formulas are used in computing depreciation but only one is used to any extent in computing depletion.
d. The cost of the asset is the starting point from which computation of the amount of the periodic charge is made to operations
for depreciation, but the fair value reassessed each year as the starting point for the periodic charge for depletion.
e.
63. Which characteristic is not possessed by intangible assets?
a. Expensed over current and/or future years.
c. Result in future benefits.
b. Physical existence.
d. Short-lived.
64.
65. Factors considered in determining an intangible assets useful life include all of the following except
a. any legal or contractual provisions that may limit the useful life.
b. any provisions for renewal or extension of the assets legal life.
c. the amortization method used.
d. the expected use of the asset.
66.
67. Broadway Corporation was granted a patent on a product on January 1, 2001. To protect its patent, the corporation purchased on
January 1, 2012 a patent on a competing product which was originally issued on January 10, 2008. Because of its unique plant,
Broadway Corporation does not feel the competing patent can be used in producing a product. The cost of the competing patent
should be
a. amortized over a maximum period of 16 years.
c. amortized over a maximum period of 9 years.
b. amortized over a maximum period of 20 years.
d. expensed in 2012.
e.

68. Goodwill may be recorded when:


a. a company has exceptional customer relations.
b. it is identified within a company.
c. one company acquires another in a business combination.
d. the fair value of a companys assets exceeds their cost.
e.
69. When a company develops a trademark the costs directly related to securing it should generally be capitalized. Which of the following
costs associated with a trademark would not be allowed to be capitalized?
a. Attorney fees.
c. Design costs.
b. Consulting fees.
d. Research and development fees.
e.
70. The reason goodwill is sometimes referred to as a master valuation account is because
a. it represents the purchase price of a business that is about to be sold.
b. it is the difference between the fair value of the net tangible and identifiable intangible assets as compared with the purchase
price of the acquired business.
c. the value of a business is computed without consideration of goodwill and then goodwill is added to arrive at a master
valuation.
d. it is the only account in the financial statements that is based on value, all other accounts are recorded at an amount other
than their value.
e.
71. The recoverability test is used to determine any impairment loss on which of the following types of intangible assets?
a. Limited life intangibles.
c. Goodwill.
b. Indefinite life intangibles.
d. Indefinite life intangibles other than goodwill.
e.
72. How should research and development costs be accounted for, according to a Financial Accounting Standards Board Statement?
a. May be either capitalized or expensed when incurred, depending upon the materiality of the amounts involved.
b. Must be capitalized when incurred and then amortized over their estimated useful lives.
c. Must be expensed in the period incurred unless it can be clearly demonstrated that the expenditure will have alternative future
uses or unless contractually reimbursable.
d. Must be expensed in the period incurred.
e.
73. Which of the following would be considered research and development?
a. Construction of prototypes.
b. Marketing research to promote a new product.
c. Periodic alterations to existing production lines.
d. Routine efforts to refine an existing product.
e.
74. Which of the following intangible assets should be shown as a separate item on the balance sheet?
a. Franchise
c. Patent
b. Goodwill
d. Trademark
e.
75. Which of the following costs incurred with developing computer software for internal use should be capitalized?
a. Coding.
c. Maintenance.
b. Evaluation of alternatives.
d. Training.
e.
76. Which of the following research and development related costs should be capitalized and depreciated over current and future
periods?
a. Administrative salaries allocated to research and development
b. Inventory used for a specific research project
c. Research and development general laboratory building which can be put to alternative uses in the future
d. Research findings purchased from another company to aid a particular research project currently in process
e.
77. Which of the following principles best describes the current method of accounting for research and development costs?
a. Associating cause and effect
c. Income tax minimization
b. Immediate recognition as an expense
d. Systematic and rational allocation
e.
78. Which of the following is a current liability?
a. A long-term debt maturing currently, which is to be converted into common stock
b. A long-term debt maturing currently, which is to be paid with cash in a sinking fund
c. A long-term debt maturing currently, which is to be retired with proceeds from a new debt issue
d. None of these
e.
79. Which of the following is not true about the discount on short-term notes payable?
a. The Discount on Notes Payable account has a debit balance.
b. The Discount on Notes Payable account should be reported as an asset on the balance sheet.

c.
d.

80.

81.

82.

83.

84.

85.

86.

87.

88.

89.

90.

When there is a discount on a note payable, the effective interest rate is higher than the stated discount rate.
All of these are true.
e.
Which of the following is not considered a part of the definition of a liability?
a. Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current
liabilities.
b. Present obligation that entails settlement by probable future transfer or use of cash, goods, or services.
c. Transaction or other event creating the liability has already occurred.
d. Unavoidable obligation.
e.
Which of the following does not demonstrate evidence regarding the ability to consummate a refinancing of short-term debt?
a. Actually refinance the obligation.
b. Enter into a financing agreement that clearly permits the entity to refinance the obligation.
c. Have capacity under existing financing agreements that can be used to refinance the obligation.
d. Management indicated that they are going to refinance the obligation.
e.
Which of the following terms is associated with recording a contingent liability?
a. Likely.
c. Probable.
b. Possible.
d. Remote.
e.
Jeff Beck is a farmer who owns land which borders on the right-of-way of the Northern Railroad. On August 10, 2012, due to the
admitted negligence of the Railroad, hay on the farm was set on fire and burned. Beck had had a dispute with the Railroad for several
years concerning the ownership of a small parcel of land. The representative of the Railroad has offered to assign any rights which the
Railroad may have in the land to Beck in exchange for a release of his right to reimbursement for the loss he has sustained from the
fire. Beck appears inclined to accept the Railroad's offer. The Railroad's 2012 financial statements should include the following related
to the incident:
a. creation of a liability only.
b. disclosure in note form only.
c. recognition of a loss and creation of a liability for the value of the land.
d. recognition of a loss only.
e.
Use of the accrual method in accounting for product warranty costs
a. finds the expense account being charged when the seller performs in compliance with the warranty.
b. is frequently justified on the basis of expediency when warranty costs are immaterial.
c. is required for federal income tax purposes.
d. represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale.
e.
Espinosa Co. has a loss contingency to accrue. The loss amount can only be reasonably estimated within a range of outcomes. No
single amount within the range is a better estimate than any other amount. The amount of loss accrual should be
a. the maximum of the range.
c. the minimum of the range.
b. the mean of the range.
d. zero.
e.
Which of the following best describes the cash-basis method of accounting for warranty costs?
a. Expensed based on estimate in year of sale.
c. Expensed when liability is accrued.
b. Expensed when incurred.
d. Expensed when warranty claims are certain.
e.
A contingent liability
a. definitely exists as a liability but its amount and due date are indeterminable.
b. is accrued even though not reasonably estimated.
c. is not disclosed in the financial statements.
d. is the result of a loss contingency.
e.
Which of the following situations may give rise to unearned revenue?
a. Selling magazine subscriptions.
c. Selling inventory.
b. Providing trade credit to customers.
d. Providing manufacturer warranties.
e.
Which of the following is a current liability?
a. A cash dividend payable to preferred stockholders
b. A dividend payable in the form of additional shares of stock
c. Preferred dividends in arrears
d. All of these
e.
The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the
a. bond coupon.
c. bond indenture.
b. bond debenture.
d. registered bond.

e.
91. Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a
premium, this indicates that
a. no necessary relationship exists between the two rates.
b. the effective yield or market rate of interest exceeded the stated (nominal) rate.
c. the market and nominal rates coincided.
d. the nominal rate of interest exceeded the market rate.
e.
92. Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to
a. the market rate multiplied by the beginning-of-period carrying amount of the bonds.
b. the market rate of interest multiplied by the face value of the bonds.
c. the stated (nominal) rate of interest multiplied by the face value of the bonds.
d. the stated rate multiplied by the beginning-of-period carrying amount of the bonds.
e.
93. The printing costs and legal fees associated with the issuance of bonds should
a. be accumulated in a deferred charge account and amortized over the life of the bonds.
b. be expensed when incurred.
c. be reported as a deduction from the face amount of bonds payable.
d. not be reported as an expense until the period the bonds mature or are retired.
e.
94. An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between
interest dates. At the time of reacquisition
a. any costs of issuing the bonds must be amortized up to the purchase date.
b. interest must be accrued from the last interest date to the purchase date.
c. the premium must be amortized up to the purchase date.
d. all of these.
e.
95. 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?
a. 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.
b. The amount of interest expense will remain constant over the 10-year period.
c. The balance of mortgage payable at a given balance sheet date will be reported as a long-term liability.
d. The balance of mortgage payable will remain a constant amount over the 10-year period.
e.
96. When a note payable is issued for property, goods, or services, the present value of the note is measured by
a. the fair value of the note.
b. the fair value of the property, goods, or services.
c. using an imputed interest rate to discount all future payments on the note.
d. any of these.
e.
f.
Use the following information for questions 83 and 84:
g. Fox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%.
h.
97. One step in calculating the issue price of the bonds is to multiply the principal by the table value for
a. 10 periods and 10% from the present value of 1 table.
b. 10 periods and 8% from the present value of 1 table.
c. 20 periods and 4% from the present value of 1 table.
d. 20 periods and 5% from the present value of 1 table.
e.
98. Another step in calculating the issue price of the bonds is to
a. multiply $10,000 by the table value for 10 periods and 10% from the present value of an annuity table.
b. multiply $10,000 by the table value for 20 periods and 4% from the present value of an annuity table.
c. multiply $5,000 by the table value for 20 periods and 4% from the present value of an annuity table.
d. multiply $5,000 by the table value for 20 periods and 5% from the present value of an annuity table.
e.
99. Long-term debt that matures within one year and is to be converted into stock should be reported
a. as a current liability.
b. as noncurrent and accompanied with a note explaining the method to be used in its liquidation.
c. as noncurrent.
d. in a special section between liabilities and stockholders equity.
e.
100. Note disclosures for long-term debt generally include all of the following except
a. assets pledged as security.
b. call provisions and conversion privileges.

a.
b.

109.

c. names of specific creditors.


d. restrictions imposed by the creditor.
101. A troubled debt restructuring will generally result in a
a. gain by both the debtor and the creditor.
c. loss by both the debtor and the creditor.
b. gain by the debtor and a loss by the creditor.
d. loss by the debtor and a gain by the creditor.
e.
102. In a troubled debt restructuring in which the debt is restructured by a transfer of assets with a fair value less than the carrying
amount of the debt, the debtor would recognize
a gain on the restructuring.
no gain or loss on the restructuring.
a loss on the restructuring.
none of these.
e.
103. In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than
the total future cash flows, the creditor should
a. calculate its loss using the current effective rate of the loan.
b. calculate its loss using the historical effective rate of the loan.
c. compute a new effective-interest rate.
d. not recognize a loss.
e.
104. Treasury bonds should be shown on the balance sheet as
a. a deduction from bonds payable issued to arrive at net bonds payable and outstanding.
b. a reduction of stockholders' equity.
c. an asset.
d. both an asset and a liability.
e.
105. The Oakes Company has a loan due for repayment in six months' time, but Oakes has the option to refinance for repayment two years
later. Oakes plans to refinance this loan. In which section of its statement of financial position should this loan be presented,
according to IAS1 Presentation of financial statements?
a. Current assets
c. Non-current assets
b. Current liabilities
d. Non-current liabilities
e.
106. A brand name that was acquired separately should initially be recognized , according to IAS38 Intangible assets, at
a. recoverable amount
c. fair value
b. either cost or fair at the choice of the acquirer
d. cost
e.
107. The Scandium Company is commencing a new construction project, which is to be financed by borrowing. The key dates are as
follows: 15 May 20X8 Loan interest relating to the project starts to be incurred
a.
b.
3 June 20X8 Technical site planning commences
c.
12 June 20X8 Expenditures on the project start to be incurred
d.
18 July 20X8 Construction work commences
e.
f.
According to IAS23 Borrowing costs, from what date can Scandium commence the capitalization of borrowing costs?
g. 15 May 20X8
i.
12 June 20X8
h. 3 June 20X8
j.
18 July 20X8
k.
108. According to IAS41 Agriculture, which of the following items would be classified as biological assets?
a. Carcass
c. Oranges
b. Trees
d. Eggs
e.
Which of the following statements regarding Investment Property is (are) true
a.
b.
I. An investment property shall be measured initially at its cost
c.
II. Transaction cost shall be included in the initial measurement of investment property
d.
III. With certain exceptions, an entity shall choose as its accounting policy either the fair value model or the cost
model and shall apply such policy to all its investment property
e.
f.
I and II only
h. I, II and III
g. I and III only
i.
II and III only
j.
110. Under IAS 20, which of the following is permitted in recognizing an intangible asset acquired free of charge, or for nominal
consideration, by way of a government grant?
I.
Recognize both the intangible asset and the grant initially at fair value.
II.
Recognize
the
asset
initially
at
a
nominal
amount
plus
any
expenditure
that
is
directly
attributable to preparing the asset for its intended use
a.
b. Either I or II, at the option of the entity
c. I only

d. II only
e. Neither I nor II
111. A corporation issues bonds with detachable warrants. The amount to be recorded as paid-in capital is preferably
a. based on the relative market values of the two securities involved.
b. calculated by the excess of the proceeds over the face amount of the bonds.
c. equal to the market value of the warrants.
d. zero.
e.
112. When a bond issuer offers some form of additional consideration (a sweetener) to induce conversion, the sweetener is accounted
for as a(n)
a. expense.
c. loss.
b. extraordinary item.
d. none of these.

10

e.
113. Proceeds from an issue of debt securities having stock warrants should not be allocated between debt and equity features when
a. exercise of the warrants within the next few fiscal periods seems remote.
b. the allocation would result in a discount on the debt security.
c. the market value of the warrants is not readily available.
d. the warrants issued with the debt securities are nondetachable.
e.
114. Convertible bonds
a. are usually secured by a first or second mortgage.
b. have priority over other indebtedness.
c. may be exchanged for equity securities.
d. pay interest only in the event earnings are sufficient to cover the interest.

e.