Question 31. In general, derivative instruments are

31. In general, derivative instruments are
a. Not reported in a company’s balance sheet because their impact on the company is not yet
b. Reported in the balance sheet at fair value and changes in their fair value are reported in
c. Reported in the balance sheet at historical cost and changes in their fair value are reported in
d. Reported in the balance sheet at fair value and changes in their fair value are reported in other
known..
earnings.
earnings.
comprehensive income.
32. Under a troubled debt restructuring that results in a modification of terms the debtor will report
interest expense when
a. The debtor reports a gain on restructuring.
b. The future cash flows under the restructuring agreement are less than the company’s
c. Always because the troubled debtor has a new agreement that obligates the company to make
d. The debtor reports no gain on restructuring.
obligation at the date the restructuring takes place.
payments in the future.
Essay
1. List and discuss five factors that may be employed to determine if a particular financial
instrument is a debt or equity security.
.
2. Discuss the definition and the proper accounting for mandatorily redeemable preferred stock.
3. Discuss the four basic reasons why a corporation may wish to issue debt rather than equity
securities
4. Define the following terms:
a. Mortgage bonds
b. Debenture bonds
5. Explain how the selling price of a bond is determined.
6. What is a zero coupon bond? Discuss accounting for zero-coupon bonds.
7. Discuss the difference between the straight-line and the effective interest methods of bond
premium or discount amortizations.
8. List the three methods of accounting for bonds refunding. Under current GAAP, how are
bond refundings recorded?
9. Discuss the factors that might motivate corporate management to decide to issue convertible
debt.
10. Discuss accounting for long-term notes payable as originally described in APB Opinion
No. 21.
11. Discuss accounting for contingencies
12. What is a derivative? Describe the accounting treatment for fair value and cash flow
hedges required by SFAS No. 133.
13. Define the following terms:
a. Forward
b. Future
.
c. Option
.
d. Swap
e. Hybrid
.
14. What is a troubled debt restructuring? How is a troubled debt restructuring
accomplished?
15. Obtain the financial statements of a company and ask the students to compute the:
.
16. How are compound financial instruments accounted for under IAS No. 32?
17. According to IAS No. 39, when are financial liabilities recognized?

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