Reference no: EM132748182
Questions -
Q1) An investor purchased a bond as a long-term investment between interest dates at a premium. At the purchase date, the cash paid to the seller is
A. The same as the face amount of the bond.
B. The same as the face amount of the bond plus accrued interest.
C. More than the face amount of the bond.
D. Less than the face amount of the bond.
Q2) In Year 5, Lee Co. acquired, at a premium, Enfield, Inc., 10-year bonds as a long-term investment. At December 31, Year 6, Enfield's bonds were quoted at a small discount. Which of the following situations is the most likely cause of the decline in the bonds' fair value?
A. Enfield issued a stock dividend.
B. Enfield is expected to call the bonds at a premium, which is less than Lee's carrying amount.
C. Interest rates have declined since Lee purchased the bonds.
D. Interest rates have increased since Lee purchased the bonds.
Q3) Jent Corp. purchased bonds at a discount of $10,000. Subsequently, Jent sold these bonds at a premium of $14,000. During the period that Jent held this investment, amortization of the discount amounted to $2,000. What amount should Jent report as gain on the sale of bonds?
A. $12,000
B. $22,000
C. $24,000
D. $26,000
Q4) On October 1, Year 1, Park Co. purchased 200 of the $1,000 face amount, 10% bonds of Ott, Inc., for $220,000, including accrued interest of $5,000. The bonds, which mature on January 1, Year 8, pay interest semiannually on January 1 and July 1. Park used the straight-line method of amortization and appropriately recorded the bonds as a long-term investment. On Park's December 31, Year 2, balance sheet, the bonds should be reported at
A. $215,000
B. $214,400
C. $214,200
D. $212,000
Q5) Management can estimate the amount of loss that will occur if a foreign government expropriates some company assets. If expropriation is reasonably possible, a loss contingency should be
A. Disclosed but not accrued as a liability.
B. Disclosed and accrued as a liability.
C. Accrued as a liability but not disclosed.
D. Neither accrued as a liability nor disclosed.
Q6) On December 31, Year 4, Mith Co. was a defendant in a pending lawsuit. The suit arose from the alleged defect of a product that Mith sold in Year 1. In the opinion of Mith's attorney, it is probable that Mith will have to pay $50,000, and it is reasonably possible that Mith will have to pay $60,000 as a result of this lawsuit. In its Year 4 financial statements, Mith should report
A. An accrued liability of $50,000 only.
B. An accrued liability of $50,000 and would disclose a contingent liability for an additional $10,000.
C. An accrued liability of $60,000 only.
D. No information about this lawsuit.
Q7) Eagle Co., a nonpublic entity, has cosigned the mortgage note on the home of its president, guaranteeing the indebtedness in the event that the president should default. Eagle considers the likelihood of default to be remote. How should the guarantee be treated in Eagle's financial statements?
A. Disclosed only.
B. Accrued only.
C. Accrued and disclosed.
D. Neither accrued nor disclosed.