question

Volt Electronics sells equipment that includes a three-year warranty. Repairs under the warranty are performed by an independent service company under contract with Volt. Based on prior experience, warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs:

answer

When the equipment is sold.

question

The cost of customer premium offers should be charged to expense:

answer

When the related product is sold.

question

Red Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country. If expropriation is probable, a loss contingency should be:

answer

Disclosed and accrued as a liability.

question

Blue Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country. If the likelihood of expropriation is remote, a loss contingency should be:

answer

Neither accrued as a liability nor disclosed.

question

A contingent loss should be reported in a disclosure note to the financial statements rather than being accrued if:

answer

The incurrence of a loss is reasonably possible.

question

A loss contingency should be accrued in a company's financial statements only if the likelihood that a liability has been incurred is:

answer

Probable and the amount of the loss can be reasonably estimated.

question

Gain contingencies usually are recognized in a company's income statement when:

answer

Realized.

question

Financial statement note disclosure is required for material potential losses when the loss is at least reasonably possible:

answer

Even if the amount is not reasonably estimable.

question

Large, highly rated firms sometimes sell commercial paper:

answer

To borrow funds at a lower rate than through a bank.

question

Which of the following is not a current liability?

answer

A note payable due in two years.

question

When a product or service is delivered for which a customer advance has been previously received, the appropriate journal entry includes:

answer

A debit to a liability and a credit to a revenue account.

question

Revenue associated with gift card sales should be recognized:

answer

When the probability of gift card redemption is viewed as remote.

question

When a deposit on returnable containers is forfeited, the firm holding the deposit will experience:

answer

An increase in revenue.

question

All of the following but one represent collections for third parties. Which one of the following is not a collection for a third party?

answer

Customer deposits.

question

The interest rate that is printed on the bond certificate is not referred to as the:

answer

Effective rate.

question

Most corporate bonds are:

answer

Debenture bonds.

question

The rate of interest that actually is incurred on a bond payable is called the:

answer

Effective rate.

question

Interest expense is:

answer

The effective interest rate times the amount of the debt outstanding during the interest period.

question

Bonds usually sell at their:

answer

Present value.

question

An amortization schedule for bonds issued at a premium:

answer

Is a schedule that reflects the changes in the debt over its term to maturity.

question

Bonds are issued on June 1 that have interest payment dates of April 1 and October 1. Bond interest expense for the year ended December 31, 2013, is for a period of:

answer

Seven months.

question

Ordinarily, the proceeds from the sale of a bond issue will be equal to:

answer

The present value of the face amount plus the present value of the stream of interest payments.

question

A $500,000 bond issue sold for 98. Therefore, the bonds:

answer

Sold at a discount because the stated rate of interest was lower than the effective rate.

question

For a bond issue that sells for more than the bond face amount, the effective interest rate is:

answer

Less than the rate stated on the face of the bond.

question

When bonds are sold at a discount and the effective interest method is used, at each subsequent interest payment date, the cash paid is:

answer

Less than the effective interest.

question

Bonds were issued at a discount. In the bond amortization schedule:

answer

The total effective interest over the term to maturity is equal to the amount of the discount plus the total cash interest paid.

question

A bond issue with a face amount of $500,000 bears interest at the rate of 10%. The current market rate of interest is 11%. These bonds will sell at a price that is:

answer

Less than $500,000.

question

Zero-coupon bonds:

answer

Offer a return in the form of a deep discount off the face value.

question

Discount-Mart issued ten thousand $1,000 bonds on January 1, 2013. The bonds have a 10-year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds. What is the stated annual rate of interest on the bonds?

answer

6%.

question

When a long-term note is given in exchange for equipment, the amount considered as paid for the machine is:

answer

The present value of the note payments discounted at the market rate.

question

Distinguishing between operating and capital leases is due in large part to the accounting concept of:

answer

Substance over form.

question

One of the four criteria for a capital lease specifies that the lease term be equal to or greater than:

answer

75% of the expected economic life of the leased property.

question

One of the four criteria for a capital lease specifies that the present value of the minimum lease payments be equal to or greater than:

answer

90% of the fair value of the asset.

question

For the lessee to account for a lease as a capital lease, the lease must meet:

answer

Any one of the four criteria specified by GAAP regarding accounting for leases.

question

For the lessor to account for a lease as a capital lease, the lease must meet:

answer

Any one of first four classification criteria and both of the last two additional conditions specified by GAAP regarding accounting for leases.

question

Which of the following is not among the criteria for classifying a lease as a capital lease?

answer

The noncancelable lease term is equal to 90% or more of the expected economic life of the asset.

question

Of the four criteria for a capital lease, which two are not applied if the lease begins during the final quarter of the asset's useful life?

answer

The 90% test and the 75% test.

question

The appropriate asset value reported in the balance sheet by the lessee for an operating lease is:

answer

Zero, unless a prepayment or accrual is involved.

question

Which of the following statements characterizes an operating lease?

answer

The lessor records depreciation and lease revenue.

question

Prepayments made on an operating lease are considered to be:

answer

A prepayment of rent.

question

Leasehold improvements usually are classified in a balance sheet as:

answer

Property, plant, and equipment.

question

When a lease qualifies as a capital lease, what is the cost basis of the asset acquired?

answer

The present value of the minimum lease payments, exclusive of executory costs.

question

For a capital lease, an amount equal to the present value of the minimum lease payments should be recorded by the lessee as a(n):

answer

Asset and a liability.

question

For a leased asset under a lease that qualifies as a capital lease because of a bargain purchase option, the depreciation period used by the lessee must be:

answer

The useful life to the lessee.

question

For a leased asset under a lease that qualifies as a capital lease because of a bargain purchase option, the depreciation period used by the lessee must be:

answer

Present value of an annuity due table.

Warranties

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