ACCT 302 : Intermediate Accounting! Trivia Questions Quiz
This quiz is from the ACCT 302 intermediate accounting and is perfect for you to see just how ready you are for the certifying exam coming up in spring. Do you feel like you have properly revised for it or do you need some more time to revise? Take up the test and get to find out. All the best!
- 1.
An example of an item which is not a liability is
- A.
The portion of long-term debt due within one year
- B.
Accrued estimated warranty costs
- C.
Advances from customers on contracts
- D.
Dividends payable in stock
Correct Answer
D. Dividends payable in stockExplanation
Dividends payable in stock are not considered a liability because they represent a distribution of earnings to shareholders rather than a debt or obligation owed by the company. When dividends are paid in stock, the company issues additional shares to shareholders instead of cash. This does not create a liability for the company as it does not involve any future payment or obligation.Rate this question:
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- 2.
If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be
- A.
Less than if the straight-line method were used
- B.
Greater than the amount of interest payments
- C.
Greater than if the straight-line method were used
- D.
The same as if the straight-line method were used
Correct Answer
C. Greater than if the straight-line method were usedExplanation
If bonds are issued initially at a premium, it means that the bond's issue price is higher than its face value. The effective-interest method of amortization allocates the premium over the life of the bond using the effective interest rate. This results in higher interest expense in the earlier years because a larger portion of the premium is amortized in those years. In contrast, the straight-line method of amortization allocates the premium evenly over the life of the bond, resulting in lower interest expense in the earlier years. Therefore, interest expense in the earlier years will be greater if the effective-interest method is used compared to the straight-line method.Rate this question:
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- 3.
The interest rate written in terms of the bond indenture is known as the
- A.
Nominal rate
- B.
Coupon rate
- C.
Stated rate
- D.
Coupon rate. nominal rate of stated rate
Correct Answer
D. Coupon rate. nominal rate of stated rateExplanation
The interest rate written in terms of the bond indenture is known as the coupon rate. This rate represents the annual interest payment that the bondholder will receive based on the bond's face value. The coupon rate is fixed and stated as a percentage of the face value, and it is used to calculate the periodic interest payments. The terms "nominal rate" and "stated rate" are not commonly used in relation to bond indentures, making them incorrect options.Rate this question:
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- 4.
Under the effective-interest method of bond discount of premium amortization, the periodic interest expense is equal to
- A.
The stated (nominal) rate of interest multiplied by the face value of the bonds
- B.
The market rate of interest multiplied by the face value of the bonds
- C.
The stated rate multiplied by the beginning-of-period carrying amount of the bonds
- D.
The market rate multiplied by the beginning-of-period carrying amount of the bond
Correct Answer
D. The market rate multiplied by the beginning-of-period carrying amount of the bondExplanation
The correct answer is the market rate multiplied by the beginning-of-period carrying amount of the bond. This is because under the effective-interest method of bond discount or premium amortization, the periodic interest expense is calculated based on the market rate of interest and the carrying amount of the bond at the beginning of the period. The market rate reflects the current interest rate in the market, while the carrying amount represents the book value of the bond. Multiplying these two values gives the correct calculation for the periodic interest expense.Rate this question:
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- 5.
Treasury bonds should be shown on the balance sheet as
- A.
An asset
- B.
Both an asset and liability
- C.
A deduction from bonds payable issued to arrive at net payable and outstanding
- D.
A reduction of stockholder's equity
Correct Answer
C. A deduction from bonds payable issued to arrive at net payable and outstandingExplanation
Treasury bonds should be shown on the balance sheet as a deduction from bonds payable issued to arrive at net payable and outstanding. This is because treasury bonds are typically issued by a company to raise capital, and they represent a liability for the company. Deducting the treasury bonds from the bonds payable gives a more accurate representation of the company's net payable and outstanding balance.Rate this question:
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- 6.
When a note payable is issued for property, goods, or services, the present value of the note is measured by
- A.
Any of these
- B.
Using an imputed interest rate to discount all future payments on the note
- C.
The market value of the note
- D.
The fair value of the property, goods, or services
Correct Answer
A. Any of theseExplanation
When a note payable is issued for property, goods, or services, the present value of the note can be measured by any of these options. The first option involves using an imputed interest rate to discount all future payments on the note. This means that the value of the note is determined based on the time value of money, taking into account the interest that would be earned if the payments were invested. The second option is to consider the market value of the note, which is the price at which it could be sold in the market. Lastly, the fair value of the property, goods, or services received in exchange for the note can also be used to determine its present value.Rate this question:
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- 7.
Long-term debt that matures within one year and is to be converted into stock should be reported as
- A.
As noncurrent
- B.
As noncurrent and accompanied with a note explaining the method to be used in its liquidation
- C.
In a special section between liabilities and stockholder's equity
- D.
As a current liability
Correct Answer
B. As noncurrent and accompanied with a note explaining the method to be used in its liquidationExplanation
Long-term debt that matures within one year and is to be converted into stock should be reported as noncurrent because it is expected to be settled after one year. Additionally, it should be accompanied with a note explaining the method to be used in its liquidation to provide clarity and transparency to the users of the financial statements.Rate this question:
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- 8.
A troubled debt restructuring will generally result in a
- A.
Loss by both the debtor and the creditor
- B.
Loss by the debtor and a gain by the creditor
- C.
Gain by both the debtor and the creditor
- D.
Gain by the debtor and a loss by the creditor
Correct Answer
D. Gain by the debtor and a loss by the creditorExplanation
In a troubled debt restructuring, the debtor is facing financial difficulties and is unable to meet their debt obligations. As a result, the debtor may negotiate with the creditor to modify the terms of the debt, such as reducing the interest rate or extending the repayment period. This restructuring allows the debtor to gain some relief and potentially improve their financial situation. On the other hand, the creditor agrees to the restructuring in order to mitigate potential losses and recover at least a portion of the debt. Therefore, the debtor gains from the restructuring while the creditor experiences a loss.Rate this question:
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- 9.
On January 1, 2007, Bleeker Co. issued eight-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: The present value of 1 for eight periods at 6% .627 The present value of 1 for eight periods at 8% .540 Present value of 1 for 16 periods at 3% .623 The present value of 1 for 16 periods at 4% .534 The present value of an annuity for eight periods at 6% 6.210 The present value of an annuity for eight periods at 8% 5.747 The present value of an annuity for 16 periods at 3% 12.561 The present value of an annuity for 16 periods at 4% 11.652
- A.
623,000, 0%
- B.
540,000, 0%
- C.
534,000, 100%
- D.
627,000, 0%
Correct Answer
C. 534,000, 100%Explanation
The correct answer is 534,000, 100%. This means that the present value of 1 for sixteen periods at 4% is $534,000 and the present value of an annuity for sixteen periods at 4% is 100%. This suggests that the bond was sold at a discount, as the present value of the bond's future cash flows is lower than its face value.Rate this question:
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- 10.
On January 1, 2007, Bleeker Co. issued eight-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are: The present value of 1 for eight periods at 6% .627 The present value of 1 for eight periods at 8% .540 The present value of 1 for 16 periods at 3% .623 The present value of 1 for 16 periods at 4% .534 The present value of an annuity for 8 periods at 6% 6.210 The present value of an annuity for 8 periods at 8% 5.747 The present value of an annuity for 16 periods at 3% 12.561 The present value of an annuity for 16 periods at 4% 11.652
- A.
883.560, 100%
- B.
889,560, 0%
- C.
999,600, 0%
- D.
884, 820 0%
Correct Answer
A. 883.560, 100%Explanation
The correct answer is 883,560, 100%. This is because the face value of the bonds is $1,000,000 and the present value of 1 for eight periods at 8% is 0.540. Therefore, the present value of the bonds is calculated as $1,000,000 multiplied by 0.540, which equals $540,000. Since the bonds were sold to yield 8%, the present value of the bonds is equal to the selling price. Therefore, the selling price of the bonds is $540,000.Rate this question:
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- 11.
The residual interest in a corporation belongs to the
- A.
Management
- B.
Common stockholders
- C.
Creditors
- D.
Preferred stockholders
Correct Answer
B. Common stockholdersExplanation
The residual interest in a corporation refers to the remaining assets after all liabilities and obligations have been paid off. Common stockholders are the owners of the company and have the ultimate claim on these residual assets. They have the right to receive dividends and participate in the company's profits and growth. Therefore, the correct answer is common stockholders.Rate this question:
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- 12.
A primary source of stockholders' equity is
- A.
Appropriated retained earnings
- B.
Contributions by stockholders
- C.
Income retained by the corporation
- D.
Both income retained by the corporation and contributions by stockholders
Correct Answer
D. Both income retained by the corporation and contributions by stockholdersExplanation
Stockholders' equity represents the ownership interest in a corporation. It is comprised of various sources, including appropriated retained earnings and contributions by stockholders. Appropriated retained earnings refer to the portion of the corporation's profits that have been set aside for specific purposes, such as future investments or dividend payments. On the other hand, contributions by stockholders include the initial investments made by shareholders when they purchase shares of the company's stock. Therefore, both income retained by the corporation and contributions by stockholders are primary sources of stockholders' equity.Rate this question:
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- 13.
Which of the following represents the total number of shares that a corporation may issue under the terms of its charter?
- A.
Issued shares
- B.
Unissued shares
- C.
Outstanding shares
- D.
Authorized shares
Correct Answer
D. Authorized sharesExplanation
The term "authorized shares" refers to the maximum number of shares that a corporation is legally permitted to issue as stated in its charter. These shares may or may not be currently issued or outstanding. The authorization of shares allows the corporation to have flexibility in raising capital by issuing additional shares in the future if needed.Rate this question:
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- 14.
“Gains" on sales of treasury stock (using the cost method) should be credited to
- A.
Capital stock
- B.
Other income
- C.
Retained earnings
- D.
Paid-in capital from treasury stock
Correct Answer
D. Paid-in capital from treasury stockExplanation
When a company sells its treasury stock at a price higher than its cost, it generates a gain. This gain represents the excess of the selling price over the cost of the treasury stock. Since treasury stock is considered as a reduction of shareholders' equity, the gain should be credited to the paid-in capital from treasury stock account. This account specifically tracks the amount of capital contributed by shareholders when the treasury stock was initially acquired. By crediting the gain to this account, it ensures that the gain is properly allocated to the shareholders who originally contributed the capital.Rate this question:
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- 15.
According to the FASB, redeemable preferred stock should be
- A.
Included as a contra item in stockholder's equity
- B.
Excluded from the stockholder's equity heading
- C.
Included as a liability
- D.
Included with common stock
Correct Answer
C. Included as a liabilityExplanation
According to the FASB (Financial Accounting Standards Board), redeemable preferred stock should be included as a liability. This is because redeemable preferred stock represents an obligation of the company to redeem the stock at a future date or upon a specified event. It is similar to a debt instrument and therefore should be classified as a liability on the balance sheet. Including it as a liability provides a more accurate representation of the company's financial position and obligations to its shareholders.Rate this question:
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- 16.
Farmer Corporation owns 4,000,000 shares of stock in Baha Corporation. On December 31, 2007, Farmer distributed these shares of stock as a dividend to its stockholders. This is an example of a
- A.
Cash dividend
- B.
Liquidating dividend
- C.
Property dividend
- D.
Stock dividend
Correct Answer
C. Property dividendExplanation
A property dividend refers to the distribution of shares of stock in another company as a dividend. In this case, Farmer Corporation distributed its 4,000,000 shares of stock in Baha Corporation to its stockholders. This means that the stockholders of Farmer Corporation now own shares in Baha Corporation as a dividend. Therefore, the given scenario is an example of a property dividend.Rate this question:
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- 17.
The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding
- A.
Increases retained earnings and increases total stockholder's equity
- B.
Increases common stock outstanding and increases total stockholder's equity
- C.
Decreases retained earnings but does not change the total stockholder's equity
- D.
May increase or decrease paid-in capital in excess of par but does not change total stockholder's equity
Correct Answer
C. Decreases retained earnings but does not change the total stockholder's equity -
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