IAsgn8.docx

IAsgn8.docx

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IAsgn8

LESSON8

Assignment

Question1（22½marks）

Multiplechoice（1½markseach）

a.Whichofthefollowingbestdescribesthedefendant’saccountingorreportingforanunresolvedlawsuit?

1）Anestimatedliabilityshouldberecordedonthebalancesheet.

2）Itshouldalwaysberecordedintheincomestatementandbalancesheet.

3）Itshouldalwaysbedisclosedinthenotestothefinancialstatements.

4）Itshouldberecordedifpaymentisprobableandtheamountcanreasonablybeestimated.

1）Incorrect.Referto（4）.

2）Incorrect.Referto（4）.

3）Incorrect.Referto（4）.

4）Correct.Anunresolvedlawsuitshouldberecordedinthedefendant’saccountingrecordsifapaymentisprobableandtheamountcanreasonablybeestimated.Ifapaymentisprobablybutcannotbereasonablyestimatedthenitshouldbedisclosedinthenotestothefinancialstatements.

b.Howshouldobligationsthatarenotexpectedtobepaidwithinoneyearbereported?

1）Ascurrentassets

2）Ascurrentliabilities

3）Aslong-termliabilities

4）Asoperatingcycleliabilities

1）Incorrect.Currentassetsarenotobligations（orliabilities）.

2）Incorrect.Currentliabilitiesarethosethataretobepaidwithinoneyearoroneaccountingcyclewhicheverislonger.

3）Correct.Obligations（orliabilities）thatarenotexpectedtobepaidwithinoneyearshouldbereportedaslong-termliabilities.

4）Incorrect.Operatingcycleliabilitiesimplycurrentliabilitieswhicharepaidwithinoneyearoronecycle.

c.Whatdoesabondtradedat971/2mean?

1）Thebondpays2.5%interest.

2）Thebondiscurrentlytradedat€1,025per€1,000bond.

3）Themarketrateofinterestis2.5%.

4）Themarketinterestrateisgreaterthanthebondcouponrate.

1）Incorrect.Thebondpays2.5%interest.

2）Incorrect.Thebondiscurrentlytradedat€1,025per€1,000bond.

3）Incorrect.Themarketrateofinterestis2.5%.

4）Correct.Themarketinterestrateisgreaterthanthebondcouponrate.

d.Whatdoesabondtradedat1021/2mean?

1）Thebondpays2.5%interest.

2）Thebondiscurrentlytradedat€1,025per€1,000bond.

3）Themarketrateofinterestis2.5%.

4）Themarketinterestrateisgreaterthanthebondcouponrate.

1）Incorrect.Thecontract（orcoupon）ratedescribestheinterestpaidonabond.

2）Correct.Abondtradingat1021/2meansthebondiscurrentlytradedat€1,025per€1,000bond.

3）Incorrect.Themarketrateofinterestdeterminesthetradingpriceofabondbutitisnotcalculatedasthe1021/2less100.

4）Incorrect.Ifabondistradingat1021/2,themarketinterestrateislowerthanthebondcoupon（orcontract）rate.

e.Whichofthefollowingistrueofadiscountonbondspayable?

1）Occurswhenacompanyissuesbondsformorethantheparvalue

2）Occurswhenacompanyissuesbondsandthemarketrateislessthanthecontractrate

3）Isconsideredtobeacontraliability

4）Isdebitedoneachinterestpaymentdate

1）Incorrect.Adiscountonbondspayableoccurswhenacompanyissuesbondsforlessthantheparvalue.

2）Incorrect.Adiscountonbondspayableoccurswhenacompanyissuesbondsandthemarketrateisgreaterthanthecontract（orcoupon）rate.

3）Correct.TheDiscountonbondspayableaccountisconsideredtobeacontraliability.

4）Incorrect.TheDiscountonbondspayableaccountiscreditedoneachinterestpaymentdate.

f.Whichofthefollowingphrasesaccuratelydescribestheeffectiveinterestratemethod?

1）Allocatesbondinterestexpenseusingachanginginterestrate

2）Allocatesbondinterestexpenseusingaconstantinterestrate

3）Allocatesadecreasingamountofinterestoverthelifeofadiscountedbond

4）Allocatesinterestusingthecurrentmarketrate

1）Incorrect.Thestraight-lineinterestmethodallocatesbondinterestexpenseusingachanginginterestrate.

2）Correct.Theeffectiveinterestratemethodallocatesbondinterestexpenseusingaconstantinterestrate.

3）Incorrect.Theeffectiveinterestmethodallocatesanincreasingamountofinterestoverthelifeofadiscountedbond.

4）Incorrect.Theeffectiveinterestmethodallocatesinterestusingthemarketrateineffectonthedatethebondwasissued.

g.Adidasissued€200,000,10-year,8%,semi-annualbonds.Themarketrateontheissuedatewas7.5%.Adidasreceived€206,948inproceeds.Whichofthefollowingstatementsiscorrect?

1）Adidasmustpay€200,000atmaturity.

2）Adidasmustpay20interestpaymentsof€8,000eachsemi-annualperiodplus€200,000atmaturity.

3）Adidasmustpay€206,948atmaturity.

4）Adidasmustpay20interestpaymentsof€8,000eachsemi-annualperiodplus€206,948atmaturity.

1）Incorrect.Referto

（2）.

2）Correct.Adidasmustpay20interestpaymentsof€8,000eachsemi-annualperiodplus€200,000atmaturity.

3）Incorrect.Referto

（2）.

4）Incorrect.Referto

（2）.

h.Acompanyhas€100,000（parvalue）ofbondsoutstanding.Theunamortizeddiscountonthesebondsis€4,500.Thecompanyredeemedthesebondsfor97%ofpar.Whatwasthegain（loss）ontheredemption?

1）€（1,500）

2）€（3,000）

3）€1,500

4）€3,000

1）Correct.Thelossonredemptionwas€（1,500）*calculatedas:

cashpaidof€97,000（=€100,000×97%）plustheunamortizeddiscountof€4,500=€101,500lessthe€100,000parvalueofthebond=alossof€1,500.

2）Incorrect.Referto

（1）.

3）Incorrect.Referto

（1）.

4）Incorrect.Referto

（1）.

*Thismaybeclarifiedbyreviewingtheactualjournalentry:

Bondspayable100,000

Lossonredemptionofbond1,500

Cash97,000

Discountonbondspayable4,500

i.ZeroIndustrialInc.retiresitsbondsat105onJanuary1immediatelyfollowingthepaymentofsemi-annualinterest.Thecarryingvalueofthebondsattheredemptiondateis€103,745（€100,000facevalue）.Zero’sjournalentrytorecordtheredemptionwillincludewhichofthefollowing?

1）DebittoPremiumonBonds

2）CredittoPremiumonBonds

3）DebittoDiscountonBonds

4）CredittoGainonRetirementofBonds

1）Correct.Zero’sjournalentrytorecordtheredemptionwillincludeadebittoPremiumonBonds.Thecompletejournalentrywouldbeasfollows:

Bondspayable100,000

Premiumonbondspayable3,745

Lossonredemptionofbond1,255

Cash105,000

2）Incorrect.Referto

（1）.

3）Incorrect.Referto

（1）.

4）Incorrect.Referto

（1）.

j.OnSeptember30,a€30,000,6%,3-yearinstalmentnotepayableisrecordedbytheBakerCompany.Thenoterequiresthat€10,000ofprincipalplusaccruedinterestbepaidattheendofeachyear（September30）.Thejournalentrytorecordthesecondannualpaymentwouldincludewhichofthefollowing?

1）AdebittoInterestExpensefor€1,800

2）AdebittoInterestExpensefor€1,200

3）AcredittoCashfor€11,800

4）AcredittoCashfor€10,000

1）Incorrect.Referto

（2）.

2）Correct.ThejournalentrytorecordthesecondannualpaymentwouldincludeadebittoInterestExpensefor€1,200.Thecompletejournalentrywouldbeasfollows:

Notepayable10,000

Interestexpense1,200

Cash11,200

€30,000€10,000=€20,0006%=€1,200

3）Incorrect.Referto

（2）.

4）Incorrect.Referto

（2）.

k.IfonDecember31,20X6,AstaCorporationborrowed€65,000bysigninga5-year,14%instalmentnoterequiringannualpayments（onDecember31）ofaccruedinterestplusequalamountsofprincipal,whatjournalentrywouldrecordthefirstpaymentonDecember31,20X7?

1）InterestExpense1,820.00

NotesPayable13,000.00

Cash14,820.00

2）NotesPayable14,820.00

InterestPayable1,820.00

Cash13,000.00

3）InterestExpense9,100.00

NotesPayable13,000.00

Cash22,100.00

4）NotesPayable13,000.00

Cash13,000.00

1）Incorrect.Referto（3）.

2）Incorrect.Referto（3）.

3）Correct.

InterestExpense9,100.00

NotesPayable13,000.00

Cash22,100.00

4）Incorrect.Referto（3）.

l.BarnesCompanyissues€750,000,9%,20-year,semi-annualbonds.Thecurrentmarketrateis8.5%.Whatisthetotalamountofinterestowedtothebondholdersforthesemi-annualinterestpayment?

1）€67,500

2）€63,750

3）€37,500

4）€33,750

1）Incorrect.Referto（4）.

2）Incorrect.Referto（4）.

3）Incorrect.Referto（4）.

4）Correct.€750,0009%6/12=€33,750

m.Filaissued€100,000of5-year,7%bonds.Thecurrentmarketratewas7.5%.Filareceived€97,947forthebonds.Usingthestraight-linemethodofinterestamortization,whatwastheamountofinterestexpenseforthefirstsemi-annualpayment?

1）€3,500.00

2）€3,705.30

3）€3,673.01

4）€3,428.15

1）Incorrect.Referto

（2）.

2）Correct.€100,0007%6/12=€3,500.00+（€2,053totaldiscount 10 = €205.30）=€3,705.30

3）Incorrect.Referto

（2）.

4）Incorrect.Referto

（2）.

n.Aviasells€100,000ofits9%bondsatparonApril1,whichis4monthsaftertheoriginaldate.WhatistheunearnedinterestthatAviashouldcollectfromthebuyer?

1）€750

2）€5,250

3）€1,500

4）€3,000

1）Incorrect.Referto（4）.

2）Incorrect.Referto（4）.

3）Incorrect.Referto（4）.

4）Correct.TheunearnedinterestthatAviashouldcollectfromthebuyeris€3,000calculatedas€100,0009%4/12=€3,000.

o.Instalmentnotespayablethatrequirepaymentsofaccruedinteresttodateplusequalamountsofprincipalresultinwhichofthefollowing?

1）Periodicpaymentsthatgraduallydecreaseinamount

2）Equalperiodicpayments

3）Periodicpaymentsthatgraduallyincreaseinamount

4）Increasingamountsofinteresteachperiod

1）Correct.Installmentnotespayablethatrequirepaymentsofaccruedinteresttodateplusequalamountsofprincipalresultinperiodicpaymentsthatgraduallydecreaseinamount.

2）Incorrect.Installmentnotespayablethatrequireequalperiodicpaymentsincludeincreasingamountsofprincipalanddecreasi