intermediate 2 exam grind TWO

Intermediate 2 exam two: conceptual problems:

Week 6 stuffs, 

1. Unamortized premium of bonds payable of which $3000 will be amortized during the next year?

= Long term liability

2. Bank loans payable of a winery, due march 10, 2024. Product requires aging for 5 years before sale and loan will be paid from sales revenue

= Current liability

3. Serial bonds, 1,000,000 of which $200,000 = due each july 31. 

= Current liability and Long term liability

4. Amounts Withheld from employers wages for income taxes 

= current liability

5. Notes payable due Jan 15, 2023. Operating cycle is greater than one year and the current assets are used 

  = current liability

6. N/P due jan 15, 2023

  = long term liability

7. Credit balances in customers’ accounts arising from returns and allowances after collection in full of account 

= current liability

8. B/P of 2 million, maturing june 30, 2021

= current liability

9. Overdraft of 1,000 in a bank account (no other account balances carried at this bank) 

=  current liability

10. Deposits made by customers who ordered goods

= current liability

11. Indicate how these items should be classified in the financial statements

1. Disc on B.P = balance sheet

2. Int exp [credit balance] = balance sheet

3. Unamortized bond issue costs = balance sheet

4. Gain on repurchase of debt = income statement

5. Mortgage payable [payable in equal amounts over next 3 years = Balance sheet

6. Debenture bonds payable [mature in 5 years]  =balance sheet

7. n/p [due in 4 years] = balance sheet

8. Premium on b/p = balance sheet

9. b/p [due in 3 yrs] = balance sheet

1. Bond interest paid is to the 

   1. Face amount of bonds times stated interest rate

2. When interest payment dates of a bond = may 1 and nov 1 and a bond issue is sold june 1, the amount of cash received by the issuer will be 

   1. Increased by accrued int from may 1 - june 1 

3. If bonds = issued between interest dates, the entry on the books of the missing corporation will include a:

   1.  = credit to interest expense

4. Under the effective interest method of bond discount or premium amortization, periodic int exp is equal to:

   1. Market rate times beginning of period carrying amount of bonds

5. If bonds = issued at a premium, it indicates that:

   1. Nominal rate of interest exceeded the market rate

6. When a bond sells at a premium, interest expense will be:

   1. Less than bond interest payment

7. Under the effective interest method, interest expense:

   1. = the same total amount as straight line interest expense over the term of the bonds

8. If bonds are initially sold @ a discount and straight line method of amortization is used, interest expense in earlier years will:

   1. Exceed what it would have been if effective interest method of amortization were used

9. On jan 1, gasperson inc. issued $100,000,000 of 7% bonds @ 102. The journal entry to record issuance of the bonds will:

   1. Credit to premium on Bonds Payable for $2,000,000 

   2. *Calculation = (100,000,000)(1.02) = $102,000,000 then, (102,000,000 - 100,000,000) = 2,000,000.

      1. *debit cash for $102,000,000, credit B/P fo $100,000,000 then premium on bonds payable for 2,000,000.

10. If a bond was sold @ 97, the market rate was:

    1. Greater than the stated rate

Week 7 stuffs ( still chapter 14)

1. Early extinguishment of bonds payable @ a premium is made by purchase of bonds between interest dates. @ time of requisition:

   1. Any costs of issuing bonds is amortized up to purchase date

   2. Premium must be amortized up to purchase date

   3. Must be accrued from last interest date to purchase date

Answer: all of the above.

2. Generally accepted method of accounting for Gain or Loss from early extinguishment of debt treats gain or loss as:

   1. The difference between reacquisition price and the net carrying amount should be recognized in the period of redemption.

3. Swifty corp. Retires its $580,000 face value bonds @ 102 on january 1, following payment of interest. The carrying value of bonds @ redemption date is = $558,250. The entry to record the redemption will include a:

   1. Credit to $21,750 of discount on bonds payable

      1. Calculated as (580,000 - 558,250) = $21,750

4. Swifty corp. Retires its $420,000 face value bonds @ 105 on january 1, following payment of interest. The carrying value of bonds @ redemption date is = $435,729. The entry to record the redemption will include a:

   1. Debit to $15,729 to premium on Bonds Payable

      1. Calculated as (435,729 - 420,000) = $15,729

5. Balances below:

• B/P = $6,050,000

• Disc on B/P = $847,000

• Interest Payable = $155,000

Retired on 1/1/21 @ 102. What should be reported as loss on redemption?

1. $968,000

   1. Calculated as: (6,050,000)(1.02) - (6,050,000 - 847,000) = $968,000

6) an early extinguishment of b/p which were initially issued @ premium is made by purchase of the bonds between interest dates.. At the time of reacquisition:

• Any costs of issuing the bonds must be amortized up to the purchase date

• The premium must be amortized up to the purchase date 

• The interest must be accrued from the last interest date to the purchase date

7) the generally accepted method for accounting for gains or losses from early extinguishment of debt treats any gain or loss as:

1. A difference between the reacquisition price and the net carrying amount of the debt which should be recognized in the period of redemption

Week 8 stuffs 

1. The seller of a good or service should recognize revenue when:

   1. Each performance obligation = satisfied

2. One criteria that indicates that a company should disregard revenue guidance for contracts is when:

   1. Each party can unilaterally terminate the contract without compensation

3. An indication that the customer has NOT taken control of the good or service is:

   1. The customer has no significant risks or rewards of ownership

Week 9 

1. In a consignment sale, the consignee:

   1. Records a payable when cosigned merchandise is sold

2. When using the percentage of completion method, the company:

   1. Recognises revenues and gross profit each period during the contract

3. Under the percentage of completion method, how should the balances of billings on construction in process and construction in process be reported before the completion of a long-term contract?

   1. Net, as a current asset if a debit balance, and as a current liability if a credit balance.