Hardest Banking Exam Quiz: MCQ!

111 Questions | By Learning2swerve | Updated: Mar 20, 2022 | Attempts: 278

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1.

An example of an item which is not a liability is
- A.
  
  Dividends payable in stock.
- B.
  
  Advances from customers on contracts.
- C.
  
  Accrued estimated warranty costs.
- D.
  
  The portion of long-term debt due within one year.
2.

The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the
- A.
  
  Bond indenture
- B.
  
  Bond debenture
- C.
  
  Registered bond
- D.
  
  Bond coupon
3.

The term used for bonds that are unsecured as to principal is
- A.
  
  Mortgage bonds
- B.
  
  Debenture bonds
- C.
  
  Indebenture bonds
- D.
  
  Registered bond
4.

Bonds for which the owners' names are not registered with the issuing corporation are called
- A.
  
  Bearer bonds
- B.
  
  Term bonds
- C.
  
  Debenture bonds
- D.
  
  Callable bonds
5.

Bonds that pay no interest unless the issuing company is profitable are called
- A.
  
  Collateral trust bonds
- B.
  
  Debenture bonds
- C.
  
  Revenue bonds
- D.
  
  Income bonds
6.

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.
  
  Greater than if the straight-line method were used.
- B.
  
  Greater than the amount of the interest payments
- C.
  
  The same as if the straight-line method were used.
- D.
  
  Less than if the straight-line method were used.
7.

The interest rate written in the terms of the bond indenture is known as the
- A.
  
  Coupon rate
- B.
  
  Nominal rate
- C.
  
  Stated rate
- D.
  
  Coupon rate, nominal rate, or stated rate.
8.

Fox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%.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.
  
  20 periods and 5% from the present value of 1 table.
- C.
  
  10 periods and 8% from the present value of 1 table.
- D.
  
  20 periods and 4% from the present value of 1 table.
9.

Fox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%.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 5% from the present value of an annuity table.
- C.
  
  Multiply $10,000 by the table value for 20 periods and 4% from the present value of an annuity table.
- D.
  
  None of these answers is correct.
10.

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.
  
  The effective yield or market rate of interest exceeded the stated (nominal) rate.
- B.
  
  The nominal rate of interest exceeded the market rate.
- C.
  
  The market and nominal rates coincided.
- D.
  
  No necessary relationship exists between the two rates.
11.

If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will
- A.
  
  Exceed what it would have been had the effective-interest method of amortization been used.
- B.
  
  Be less than what it would have been had the effective-interest method of amortization been used.
- C.
  
  Be the same as what it would have been had the effective-interest method of amortiza-tion been used.
- D.
  
  Be less than the stated (nominal) rate of interest.
12.

Under the effective-interest method of bond discount or 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 bonds.
13.

When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will
- A.
  
  Increase only if the bonds were issued at a discount.
- B.
  
  Decrease only if the bonds were issued at a premium.
- C.
  
  Increase only if the bonds were issued at a premium.
- D.
  
  Increase if the bonds were issued at either a discount or a premium.
14.

If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a
- A.
  
  Debit to Interest Payable.
- B.
  
  Credit to Interest Receivable.
- C.
  
  Credit to Interest Expense.
- D.
  
  Credit to Unearned Interest.
15.

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 1.
- B.
  
  Decreased by accrued interest from May 1 to June 1.
- C.
  
  Increased by accrued interest from June 1 to November 1.
- D.
  
  Increased by accrued interest from May 1 to June 1.
16.

Theoretically, the costs of issuing bonds could be
- A.
  
  Expensed when incurred.
- B.
  
  Reported as a reduction of the bond liability.
- C.
  
  Debited to a deferred charge account and amortized over the life of the bonds.
- D.
  
  Any of these answers are correct.
17.

The printing costs and legal fees associated with the issuance of bonds should
- A.
  
  Be expensed when incurred
- B.
  
  Be reported as a deduction from the face amount of bonds payable.
- C.
  
  Be accumulated in a deferred charge account and amortized over the life of the bonds.
- D.
  
  Not be reported as an expense until the period the bonds mature or are retired.
18.

Treasury bonds should be shown on the balance sheet as
- A.
  
  An asset.
- B.
  
  A deduction from bonds payable issued to arrive at net bonds payable and outstanding.
- C.
  
  A reduction of stockholders' equity.
- D.
  
  Both an asset and a liability.
19.

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.
  
  The premium must be amortized up to the purchase date.
- C.
  
  Interest must be accrued from the last interest date to the purchase date.
- D.
  
  All of these answers are correct.
20.

The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as
- A.
  
  An adjustment to the cost basis of the asset obtained by the debt issue.
- B.
  
  An amount that should be considered a cash adjustment to the cost of any other debt issued over the remaining life of the old debt instrument.
- C.
  
  An amount received or paid to obtain a new debt instrument and, as such, should be amortized over the life of the new debt.
- D.
  
  A difference between the reacquisition price and the net carrying amount of the debt which should be recognized in the period of redemption.
21.

"In-substance defeasance" is a term used to refer to an arrangement whereby
- A.
  
  A company gets another company to cover its payments due on long-term debt.
- B.
  
  A governmental unit issues debt instruments to corporations.
- C.
  
  A company provides for the future repayment of a long-term debt by placing purchased securities in an irrevocable trust.
- D.
  
  A company legally extinguishes debt before its due date.
22.

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 balance of mortgage payable at a given balance sheet date will be reported as a long-term liability.
- B.
  
  The balance of mortgage payable will remain a constant amount over the 10-year period.
- C.
  
  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
- D.
  
  The amount of interest expense will remain constant over the 10-year period
23.

A debt instrument with no ready market is exchanged for property whose fair value is currently indeterminable. When such a transaction takes place
- A.
  
  The present value of the debt instrument must be approximated using an imputed interest rate.
- B.
  
  It should not be recorded on the books of either party until the fair value of the property becomes evident
- C.
  
  The board of directors of the entity receiving the property should estimate a value for the property that will serve as a basis for the transaction
- D.
  
  The directors of both entities involved in the transaction should negotiate a value to be assigned to the property
24.

When a note payable is exchanged for property, goods, or services, the stated interest rate is presumed to be fair unless
- A.
  
  No interest rate is stated.
- B.
  
  The stated interest rate is unreasonable.
- C.
  
  The stated face amount of the note is materially different from the current cash sales price for similar items or from current fair value of the note.
- D.
  
  Any of these answers are correct
25.

Which of the following arguments is presented by FASB to explain why a gain is recorded by a company when its creditworthiness is becoming worse?
- A.
  
  The shareholders' loss is the debtholders' gain.
- B.
  
  The income of the company will increase as the amount of interest payment will reduce
- C.
  
  The decrease in market rate will increase the value of equity shares.
- D.
  
  The debtholders' loss is the shareholders' gain.