Question1. A loss from early extinguishment of debt, if m

1. A loss from early extinguishment of debt, if material, should be reported as a component of
income
a. After cumulative effect f accounting changes and after discontinued operations of a segment
of a business
b. After cumulative effect of accounting changes and before discontinued operations of a
segment of a business
c. Income from continuing operations
d. Before cumulative effect of accounting changes and before discontinued operation s of a
segment of a business
2. Unamortized debt discount should be reported on the balance sheet of the issuer as
a. A direct deduction from the face amount of the debt
b. A direct deduction from the present value of the debt
c. A deferred charge
d. Part of the issue costs
3. An example of an item that 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
4. If bonds are issued initially at a discount and the straight-line method of amortization is used for
the discount, interest expense in the earlier years will be
a. Greater than if the compound interest method were used
b. The same as if the compound interest method were used
c. Less than if the compound interest method were used
d. Less than the amount of the interest payments
5. Cole Manufacturing Corporation issued bonds with a maturity amount of $200,000 and a maturity
10 years from date of issue. If the bonds were issued at a premium, this indicates that
a. The yield (effective or market) rate of interest exceeded the nominal (coupon) rate
b. The nominal rate of interest exceeded the yield rate
c. The yield and nominal rates coincided
d. No necessary relationship exists between the two rates
6. “Trading on the equity” (financial leverage) is likely to be a good financial strategy for
stockholders of companies having
a. Cyclical high and low amounts of reported earnings
b. Steady amounts of reported earnings
c. Volatile fluctuation in reported earnings over short periods of time
d. Steadily declining amounts of reported earnings
7. Theoretically, a bond payable should be reported at the present value of the interest discounted at
a. Stated interest rate for both principal and interest
b. Effective interest rate for both principal and interest
c. Stated interest rate for principal and effective interest rate for interest
d. Effective interest rate for principal and stated interest rate for interest
8. A threat of expropriation of assets that is reasonably possible, and for which the amount of loss
can be reasonably estimated, is an example of a (an)
a. Loss contingency that should be disclosed, but not accrued
b. Loss contingency that should be accrued and disclosed
c. Appropriation of retained earnings against which losses should be charged
d. General business risk which should not be accrued and need not be disclosed
9. When it is necessary to impute an interest rate in connection with a note payable, the rate should
be
a. Two-thirds of the prime rate effective at the time the obligation is incurred
b. The same as that used in the GNP Implicit Price Deflator
c. At least equal to the rate at which the debtor can obtain financing of a similar nature from
other sources at the date of the transaction
d. As near zero as can be justified
10. Taft Company sells Lee Company a machine, the usual cash price of which is $10,000, in
exchange for an $11,800 non-interest-bearing note due three years from date. If Taft records the
note at $10,000, the overall effect will be
a. A correct sales price and correct interest revenue
b. A correct sales price and understated interest revenue
c. An understated sales price and understated interest revenue
d. An overstated interest price and understated interest revenue
11. In the situation described in problem 10, if Lee records the asset and note at $11,800, the overall
effect will be
a. A correct acquisition cost and correct interest expense
b. A correct acquisition cost and understated interest expense
c. An understated acquisition cost and understated interest expense
d. An overstated acquisition cost and understated interest expense
12. How would the amortization of premium bonds payable affect each of the following?
Carrying value of
Bond Net Income
a. Increase Decrease
b. Increase Increase
c. Decrease Decrease
d. Decrease Increase
13. For a trouble debt restructuring involving only modification of terms, it is appropriate for a debtor

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