intermediate accounting 2 exam 2 conceptual grind

Week 6: Bonds and Liabilities

1. How should the unamortized premium of bonds payable be classified if $3,000 will be amortized during the next year?
   
   
   

   • a) Current liability

   • b) Long-term liability

   • Correct Answer: b) Long-term liability

2. How should bank loans payable of a winery, due March 10, 2024, be classified if the product requires aging for 5 years before sale and the loan will be paid from sales revenue?
   
   
   

   • a) Current liability

   • b) Long-term liability

   • Correct Answer: a) Current liability

3. How should serial bonds of $1,000,000, with $200,000 due each July 31, be classified?
   
   
   

   • a) Current liability

   • b) Long-term liability

   • c) Both a and b

   • Correct Answer: c) Both a and b

4. How should amounts withheld from employers' wages for income taxes be classified?
   
   
   

   • a) Current liability

   • b) Long-term liability

   • Correct Answer: a) Current liability

5. How should a note payable due January 15, 2023, be classified if the operating cycle is greater than one year and current assets are used?
   
   
   

   • a) Current liability

   • b) Long-term liability

   • Correct Answer: a) Current liability

6. If a note payable is due on January 15, 2023, how should it be classified?
   
   
   

   • a) Current liability

   • b) Long-term liability

   • Correct Answer: b) Long-term liability

7. How should credit balances in customers’ accounts from returns and allowances after collection in full be classified?
   
   
   

   • a) Current liability

   • b) Long-term liability

   • Correct Answer: a) Current liability

8. How should a bond payable of $2 million maturing on June 30, 2021, be classified?
   
   
   

   • a) Current liability

   • b) Long-term liability

   • Correct Answer: a) Current liability

9. How should an overdraft of $1,000 in a bank account be classified if no other account balances are carried at this bank?
   
   
   

   • a) Current liability

   • b) Long-term liability

   • Correct Answer: a) Current liability

10. How should deposits made by customers who ordered goods be classified?
    
    
    

    • a) Current liability

    • b) Long-term liability

    • Correct Answer: a) Current liability

11. Where should 'Discount on Bonds Payable' be reported in the financial statements?
    
    
    

    • a) Balance sheet

    • b) Income statement

    • Correct Answer: a) Balance sheet

12. Where should 'Interest Expense (credit balance)' be reported?
    
    
    

    • a) Balance sheet

    • b) Income statement

    • Correct Answer: a) Balance sheet

13. Where should 'Unamortized bond issue costs' be reported?
    
    
    

    • a) Balance sheet

    • b) Income statement

    • Correct Answer: a) Balance sheet

14. Where should 'Gain on repurchase of debt' be reported?
    
    
    

    • a) Balance sheet

    • b) Income statement

    • Correct Answer: b) Income statement

15. How should a 'Mortgage payable payable in equal amounts over the next 3 years' be reported?
    
    
    

    • a) Balance sheet

    • b) Income statement

    • Correct Answer: a) Balance sheet

16. How should 'Debenture bonds payable maturing in 5 years' be reported?
    
    
    

    • a) Balance sheet

    • b) Income statement

    • Correct Answer: a) Balance sheet

17. How should a 'Note payable due in 4 years' be reported?
    
    
    

    • a) Balance sheet

    • b) Income statement

    • Correct Answer: a) Balance sheet

18. How should a 'Premium on Bonds Payable' be reported?
    
    
    

    • a) Balance sheet

    • b) Income statement

    • Correct Answer: a) Balance sheet

19. How should a 'Bond payable due in 3 years' be reported?
    
    
    

    • a) Balance sheet

    • b) Income statement

    • Correct Answer: a) Balance sheet

Week 7 Stuffs (Still Chapter 14: Early Extinguishment of Bonds)

20. How should interest payable from May 1 to June 1 be accounted for when a bond issue is sold on June 1?
    
    
    

    • a) Decrease the cash received by the issuer

    • b) Increase the cash received by the issuer

    • Correct Answer: b) Increase the cash received by the issuer

21. What should the journal entry include if bonds are issued between interest dates?
    
    
    

    • a) Debit to cash

    • b) Credit to interest expense

    • Correct Answer: b) Credit to interest expense

22. Under the effective interest method of bond discount or premium amortization, how is periodic interest expense calculated?
    
    
    

    • a) Market rate times end of period carrying amount of bonds

    • b) Market rate times beginning of period carrying amount of bonds

    • Correct Answer: b) Market rate times beginning of period carrying amount of bonds

23. What does it indicate if bonds are issued at a premium?
    
    
    

    • a) Nominal rate of interest is less than the market rate

    • b) Nominal rate of interest exceeded the market rate

    • Correct Answer: b) Nominal rate of interest exceeded the market rate

24. How is interest expense affected when a bond sells at a premium?
    
    
    

    • a) Equal to bond interest payment

    • b) Less than bond interest payment

    • Correct Answer: b) Less than bond interest payment

25. Under the effective interest method, how does interest expense compare to the straight line interest expense over the term of the bonds?
    
    
    

    • a) More than straight line interest expense

    • b) The same total amount as straight line interest expense

    • Correct Answer: b) The same total amount as straight line interest expense

26. If bonds are initially sold at a discount and the straight line method of amortization is used, how does the interest expense in earlier years compare to using the effective interest method?
    
    
    

    • a) Less than what it would have been

    • b) Exceed what it would have been

    • Correct Answer: b) Exceed what it would have been

27. What should be included in the journal entry when bonds are issued at 102, resulting in a premium on bonds payable?
    
    
    

    • a) Debit cash for the face value, credit bonds payable

    • b) Debit cash for more than the face value, credit bonds payable and premium on bonds payable

    • Correct Answer: b) Debit cash for more than the face value, credit bonds payable and premium on bonds payable

Week 8 Stuffs (Revenue Recognition)

28. Under which condition should a company disregard revenue guidance for contracts?
    
    
    

    • a) When each party can unilaterally terminate the contract with compensation

    • b) When each party can unilaterally terminate the contract without compensation

    • Correct Answer: b) When each party can unilaterally terminate the contract without compensation

29. What indicates that the customer has NOT taken control of a good or service?
    
    
    

    • a) The customer has significant risks or rewards of ownership

    • b) The customer has no significant risks or rewards of ownership

    • Correct Answer: b) The customer has no significant risks or rewards of ownership

Week 9 Stuffs (Long-Term Contracts)

30. How should the consignee record the transaction in a consignment sale when consigned merchandise is sold?
    
    
    

    • a) Records a receivable

    • b) Records a payable

    • Correct Answer: b) Records a payable

31. How are revenues and gross profit recognized under the percentage of completion method?
    
    
    

    • a) At the end of the contract

    • b) Each period during the contract based on progress

    • Correct Answer: b) Each period during the contract based on progress

32. Before the completion of a long-term contract, how should the balances of billings on construction in process and construction in process be reported?
    
    
    

    • a) Separately, as a current asset and a current liability

    • b) Net, as a current asset if a debit balance, and as a current liability if a credit balance

    • Correct Answer: b) Net, as a current asset if a debit balance, and as a current liability if a credit balance

The classification of bonds and liabilities depends on their characteristics and maturity periods. Here are key points to consider:

• Unamortized premium of bonds payable: classified as a long-term liability.

• Bank loans payable due within one year but tied to products requiring long aging: classified as current liabilities.

• Serial bonds with portions due within a year: classified as both current and long-term liabilities.

• Amounts withheld for income taxes: classified as current liabilities.

• Note payable due in less than one year within an operating cycle: classified as current liability.

• Deposits from customers: classified as current liabilities.

Reporting on Financial Statements:

• 'Discount on Bonds Payable', 'Premium on Bonds Payable', and 'Mortgage Payable' are reported on the balance sheet.

• 'Interest Expense' and 'Gain on repurchase of debt' have specific reporting guidelines impacting the income statement and balance sheet.