TOA2

TOA QUIZZER 2

Multiple Choice

Identify the choice that best completes the statement or answers the question.

____ 1.      When all bonds mature on a single date, they are called

a.	Term bonds	c.	Debenture bonds
b.	Serial bonds	d.	Callable bonds

____ 2.      Bonds payable issued with scheduled maturities at various dates are called

a.	Convertible bonds	c.	Serial bonds
b.	Term bonds	d.	Callable bonds

____ 3.      Costs incurred in connection with the issuance of ten-year bonds which sold at a slight premium shall be

a.	Charged to retained earnings when the bonds are issued
b.	Expensed in the year in which incurred
c.	Capitalized as organization cost
d.	Reported in the statement of financial position as a deduction from bonds payable and amortized over the ten-year bond term

____ 4.      Unamortized debt discount shall be reported in the statement of financial position of the issuer as a

a.	Direct deduction from the face value of the debt
b.	Direct deduction from the present value of the debt
c.	Deferred charge
d.	Part of the issue costs

____ 5.      The issuer of a 10 year term bond sold at par three years ago with interest payable May 1 and November 1 each year, shall report in its December 31 statement of financial position

a.	Liability of accrued interest
b.	Addition to bonds payable
c.	Increase in deferred charges
d.	Contingent liability

____ 6.      When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be

a.	Decreased by accrued interest from June 1 to November 1
b.	Decreased by accrued interest from May 1 to June 1
c.	Increased by accrued interest from June 1 to November 1
d.	Increased by accrued interest from May 1 to June 1

____ 7.      A bond issued on June 1 of the current year has interest payment dates of April 1 and October 1. Bond interest expense for the current year ended December 31 is for a period of

a.	Three months	c.	Six months
b.	Four months	d.	Seven months

____ 8.      The market price of a bond issued at a discount is the present value of its principal amount at the market rate of interest

a.	Less the present value of all future interest payments at the market rate of interest.
b.	Less the present value of all future interest payments at the rate of interest stated on the bond.
c.	Plus the present value of all future interest payments at the market rate of interest.
d.	Plus the present value of all future interest payments at the rate of interest stated on the bond.

____ 9.      In theory the proceeds from the sale of a bond would be equal to

a.	The face amount of the bond
b.	The present value of the principal amount due at the end of the life of the bond plus the present value of the interest payments made during the life of the bond.
c.	The face amount of the bond plus the present value of the interest payments made during the life of the bond.
d.	The sum of the face amount of the bond and the periodic interest payments.

____ 10.    How would the amortization of premium on 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

____ 11.    How would the amortization of discount on 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

____ 12.    In current accounting practice, the valuation method used for bonds payable is

a.	Historical cost
b.	Discounted cash flow valuation at current yield rate
c.	Maturity amount
d.	Discounted cash flow valuation at yield rate at issuance

____ 13.    A five-year term bond was issued by an entity on January 1, 2008 at a premium. The carrying amount of the bond at December 31, 2009 would be

a.	The same as the carrying amount at January 1, 2008
b.	Higher than the carrying amount at January 1, 2008
c.	Higher than the carrying amount at December 31, 2010
d.	Lower than the carrying amount at December 31, 2010

____ 14.    A five-year term bond was issued by an entity on January 1, 2008 at a discount. The carrying amount of the bond at December 31, 2009 would be

a.	Higher than the carrying amount at December 31, 2008.
b.	Lower than the carrying amount at December 31, 2008.
c.	The same as the carrying amount at December 31, 2008.
d.	Higher than the carrying amount at December 31, 2010.

____ 15.    The proceeds from a bond issued with nondetachable share warrants shall be accounted for

a.	Entirely as bond payable
b.	Entirely as shareholders’ equity
c.	Partly as unearned revenue and partly as bonds payable
d.	Partly as bonds payable and partly as shareholders’ equity

____ 16.    What is the effective interest rate of a bond measured at amortized cost?

a.	The stated rate of the bond
b.	The interest rate currently charged by the entity or by others for similar bond
c.	The interest rate that exactly discounts estimated future cash payments through the expected life of the bond or when appropriate, a shorter period to the net carrying amount of the bond
d.	The basic risk-free interest rate that is derived from observable government bond prices

____ 17.    For a bond issue which sells for less than its par value the market rate of interest is

a.	Dependent on rate stated on the bond
b.	Equal to rate stated on the bond
c.	Less than rate stated on the bond
d.	Higher than rate stated on the bond

____ 18.    What is the market rate of interest for a bond issue which sells for more than its par value?

a.	Less than rate stated on the bond
b.	Equal to rate stated on the bond
c.	Higher than rate stated on the bond
d.	Independent of rate stated on the bond

____ 19.    If bonds are issued at a premium, this indicates that

a.	The yield rate of interest exceeds the nominal rate
b.	The nominal rate of interest exceeds the yield rate
c.	The yield and nominal rates coincide
d.	No necessary relationship exists between the two rates

____ 20.    Which of the following is true for a bond maturing on a single date when the effective method of amortizing bond discount is used?

a.	Interest expense as a percentage of the bond’s book value varies from period to period
b.	Interest expense increases each six-month period
c.	Interest expense remains constant each six-month period
d.	Nominal interest rate exceeds effective interest rate

____ 21.    If bonds are initially sold at a discount and the straight line method of amortization is used, interest expense in the earlier years

a.	Will exceed what it would have been had the scientific method of amortization been used
b.	Will be less than what it would have been had the scientific method of amortization been used
c.	Will be the same as what it would have been had the scientific method of amortization been used
d.	Will be less than the coupon rate of interest

____ 22.    On January 1 of the current year, an entity issued bonds at a discount. The entity incorrectly used the straight line method instead of the effective interest method to amortize the discount. How were the following amounts, as of December 31 of the current year affected by the error?

    Bond carrying amount            Retained earnings

a.	Overstated                         Overstated
b.	Understated                        Understated
c.	Oberstated                          Understated
d.	Understated                        Overstated

____ 23.    On January 1, 2009, an entity issued bonds at a discount. The bonds mature on December 31, 2014. The entity incorrectly used the straight line method instead of the effective interest method to amortize the discount. How is carrying amount of the bonds affected by the error?

    At December 31, 2009               At December 31, 2014

a.	Overstated                             Understated
b.	Overstated                             No effect
c.	Understated                           Overstated
d.	Understated                           No effect

____ 24.    A 20-year bond was issued at a premium with a call provision to retire the bonds. When the bond issuer exercised the call provision on an interest date, the call price exceeded the carrying value of the bonds. The amount of bond liability removed from the accounts should have equaled the

a.	Cash paid
b.	Face amount plus unamortized premium
c.	Call price plus unamortized premium
d.	Current market price

____ 25.    A ten-year term bond was issued at a discount with a call provision to retire the bonds. When the bond issuer exercised the call provision on an interest date, the carrying amount of the bond was less than the call price. The amount of bond liability removed from the accounts should have equaled the

a.	Call price
b.	Call price less unamortized discount
c.	Face amount less unamortized discount
d.	Face amount plus unamortized discount

____ 26.    Debentures are

a.	Unsecured bonds	c.	Ordinary bonds
b.	Secured bonds	d.	Serial bonds

____ 27.    When the bonds are sold between interest dates, any accrued interest is credited to

a.	Interest payable	c.	Interest receivable
b.	Interest revenue	d.	Bonds payable

____ 28.    Which of the following is true of accrued interest on bonds that are sold between interest dates?

a.	The accrued interest is computed at the effective rate.
b.	The accrued interest will be paid to the seller when the bonds mature.
c.	The accrued interest is extra income for the buyer.
d.	None of the above.

____ 29.    Which of the following is true of a premium on bonds payable?

a.	The premium or bonds payable is a contra shareholders’ equity account.
b.	The premium on bonds payable is an account that appears only on the books of the investor.
c.	The premium on bonds payable increases when amortization entries are made until it reaches its maturity value.
d.	The premium on bonds payable decreases when amortization entries are made until its balance reaches zero at the maturity date.

____ 30.    The net amount of a bond liability that appears in the statement of financial position is the

a.	Call price of the bond plus bond discount or minus bond premium
b.	Face value of the bond plus related discount or minus related premium
c.	Face value of the bond plus related discount or minus related premium
d.	Maturity value of the bond plus related discount or minus related premium

____ 31.    When interest expense is calculated using the effective interest method, interest expense equals the

a.	Actual amount of interest paid
b.	Book value of the bonds multiplied by the stated interest rate
c.	Book value of the bonds multiplied by the effective interest rate
d.	Maturity value of the bonds multiplied by the effective interest rate

____ 32.    When bonds are redeemed by the issuer prior to their maturity date, any gain or loss on the redemption is

a.	Amortized over the period remaining to maturity and reported as other comprehensive income.
b.	Amortized over the period remaining to maturity and reported as part of income from continuing operations.
c.	Reported as component of other comprehensive income.
d.	Reported as part of income from continuing operations in the period of redemption.

____ 33.    When bonds are retired prior to maturity with proceeds from a new bond issue, any gain or loss from the early extinguishment of debt should be

a.	Amortized over the remaining original life of the retired bond issue
b.	Amortized over the life of the new bond issue
c.	Recognized in retained earnings in the period of extinguishment
d.	Recognized in income from continuing operations in the period of extinguishment

____ 34.    An entity neglected to amortize the discount on outstanding bonds payable. What is the effect of the failure to record discount amortization on interest expense and bond carrying value, respectively?

a.	Understate and understate
b.	Understate and overstate
c.	Overstate and overstate
d.	Overstate and understate

____ 35.    An entity neglected to amortize the premium on outstanding bonds payable. What is the effect of the failure to record premium amortization on interest expense and bond carrying value, respectively?

a.	Understate and understate	c.	Overstate and overstate
b.	Understate and overstate	d.	Overstate and understate

____ 36.    When shares with par value are sold, the proceeds shall be credited to the

a.	Share capital account
b.	Share premium
c.	Retained earnings
d.	Share capital account to the extent of the par of the shares issued with any excess being reflected in share premium

____ 37.    When shares without par value are sold, the excess proceeds over stated value shall be credited to

a.	Income	c.	Share premium
b.	Retained earnings	d.	Shar capital

____ 38.    If shares are issued for a consideration other than cash, the proceeds shall be measured by the

a.	Fair value of the shares issued
b.	Par value of the shares issued
c.	Fair value of the consideration received
d.	Book value of the consideration received

____ 39.    In case shares are issued for outstanding liabilities, what is the measure for recording?

a.	Par value of the shares issued	c.	Amount of liabilities set off
b.	Fair value of the shares issued	d.	Book value of the shares issued

____ 40.    When shares are issued for services received, the measure is equal to the

a.	Fair value of such services	c.	Book value of the shares issued
b.	Par value of the shares issued	d.	Fair value of the shares issued

____ 41.    Treasury shares shall be recorded at cost irrespective of whether these are acquired below or above par value. The cost of treasury shares acquired for noncash consideration is usually measured by

a.	Fair value of the noncash consideration given
b.	Recorded amount of the noncash asset surrendered
c.	Par value of the shares
d.	Book value of the shares

____ 42.    The total cost of treasury shares shall be reported as

a.	Deduction from shareholders’ equity
b.	Asset
c.	Deduction from retained earnings
d.	Deduction from share premium

____ 43.    If treasury shares are reissued for noncash consideration, the proceeds shall be measured by

a.	Fair value of the treasury shares
b.	Fair value of the noncash consideration received
c.	Book value of the noncash consideration received
d.	Book value of the treasury shares

____ 44.    Which statement is incorrect concerning treasury shares?

a.	Treasury shares shall be recorded at cost irrespective of whether acquired below or above par value.
b.	The total cost of treasury shares shall be deducted from equity.
c.	Treasury shares may be recognized as financial asset.
d.	Gain or loss on sale of treasury shares shall not be included in profit or loss.

____ 45.    “Loss” from sale of treasury shares shall be charged to

a.	Loss on sale of treasury shares to be shown as other expense
b.	Retained earnings and then share premium from treasury shares
c.	Share premium from treasury shares and then retained earnings
d.	Share premium from original issuance, share premium from treasury shares and then retained earnings

____ 46.    Gains and losses on retirement of treasury shares shall not be included in determining income. If the retirement results in a gain, such gain shall be credited to

a.	Share premium	c.	Share capital
b.	Retained earnings	d.	Income

____ 47.    Loss on retirement of treasury shares shall be debited to

a.	Retained earnings
b.	Share premium from treasury shares and then to retained earnings
c.	Share premium from treasury shares, share premium from original issuance and then to retained earnings
d.	Share premium from original issuance, share premium from treasury shares and then retained earnings.

____ 48.    It is issuance by an entity of its own shares to its shareholders without consideration and under conditions indicating that such action is prompted mainly by a desire to increase the number of shares outstanding for the purpose of effecting a reduction in unit market price.

a.	Share split	c.	Stock dividend
b.	Reverse share split	d.	Recapitalization

____ 49.    Subscriptions receivable and other receivables from sale os shares which are not collectible currently shall be presented as

a.	Deduction from the related subscribed share capital in the shareholders’ equity section
b.	Current asset
c.	Long-term investment
d.	Other asset

____ 50.    Deposits on subscription to a proposed increase in share capital shall be reported as

a.	Part of liabilities	c.	Memorandum only
b.	Part of shareholders’ equity	d.	Part of retained earnings

____ 51.    In accounting for shareholders’ equity, the accountant is primarily concerned with which of the following?

a.	Determining the total amount of shareholders’ equity
b.	Distinguishing between realized and unrealized revenue
c.	Recording the source of each of the various elements of shareholders’ equity
d.	Making sure that the directors do not declare dividends in excess of retained earnings

____ 52.    Contributed capital does not include

a.	Share premium on ordinary and preference shares
b.	Preference share capital
c.	Capital resulting from reissuance of treasury shares at a price above acquisition price
d.	Capital accumulated by retention of earnings

____ 53.    Discount on share capital

a.	May be recorded as either an asset or an expense
b.	Shall be closed to income summary account
c.	May be offset against share premium on the same class of share capital
d.	None of the above may be done

____ 54.    An ordinary shareholder does not possess which of the following?

a.	The right to share in the earnings of the corporation when dividends are declared.
b.	The right to vote in the election of the board of directors of the corporation.
c.	The right to direct owbership of the corporate assets.
d.	The right to share proportionately in corporate assets in case of liquidation if such assets exceed the claims of creditors.

____ 55.    Which of the following is not one of the basic rights of a shareholder?

a.	The right to participate in earnings.
b.	The right to maintain one’s proportional interest in the corporation.
c.	The right to participate in the proceeds of the sale of corporate assets upon liquidation of the corporation.
d.	The right to inspect the accounting records of the corporation.

____ 56.    An entity issued rights to its existing shareholders to purchase unissued ordinary shares at more than par value. Share premium would be recorded when the rights

a.	Expire	c.	Become exercisable
b.	Are exercised	d.	Are issued

____ 57.    Which of the following is issued to shareholders of a corporation to acquire its unissued or treasury shares within a specified time at a specified price?

a.	Share option	c.	Share dividend
b.	Share warrant	d.	Share subscription

____ 58.    Share warrants outstanding shall be reported as

a.	Liability	c.	Share capital
b.	Reduction of share premium	d.	Share premium

____ 59.    When the total shareholders’ equity is smaller than the amount of contributed capital, this deficiency is called

a.	A net loss	c.	A liability
b.	A dividend	d.	A deficit

____ 60.    The par value of an ordinary share represents

a.	The liquidation value of the share
b.	The book value of the share
c.	The legal nominal value assigned to the share
d.	The amount received by the corporation when the share was originally issued

____ 61.    When collectibility is reasonably assured, the excess of the subscription price over the stated value of the no par subscribed share capital shall be recorded as

a.	No par share capital
b.	Share premium when the subscription is recorded
c.	Share premium when the subscription is collected
d.	Share premium when the capital is issued

____ 62.    The issuance of preference shares

a.	Increases preference shares outstanding
b.	Has no effecton preference shares outstanding
c.	Increases preference shares authorized
d.	Decreases preference shares authorized

____ 63.    When an entity redeems all of its preference shares for more than the original issue price, the excess paid above the original issue price shall be

a.	Accounted for as loss on exchange in the income statement
b.	Charged against share premium of ordinary shares
c.	Charged to a discount on preference shares
d.	Charged against retained earnings

____ 64.    When preference shares are purchased and retired by the issuing entity for less than original issue price, proper accounting for the retirement

a.	Increases the amount of dividends available to ordinary shareholders
b.	Increases the contributed capital of the ordinary shareholders
c.	Increases reported income for the period
d.	Increases the treasury shares held by the corporation

____ 65.    The purchase of treasury shares

a.	Decreases shares authorized	c.	Decreases shares outstanding
b.	Decreases shares issued	d.	Has no effect on shares outstanding

____ 66.    Treasury shares were acquired for cash at more than par value, and then subsequently sold for cash at more than acquisition price. What is the effect on share premium from treasury shares?

     Purchase of                Sale of

     treasury shares          treasury shares     

a.	Increase                   Increase
b.	Decrease                 No effect
c.	No effect                 Increase
d.	No effect                 No effect

____ 67.    Which of the following statements best describes the net effect on retained earnings of the purchase and subsequent sale of treasury shares?

a.	Retained earnings may never be increased but sometimes decreased.
b.	Retained earnings may never be increased or decreased.
c.	Retained earnings sometimes may be increased but never be decreased.
d.	Retained earnings account is always affected unless the selling price is exactly equal to cost

____ 68.    At the date of the financial statements, shares issued would exceed shares outstanding as a result of

a.	Declaration of share split	c.	Purchase of treasury shares
b.	Declaration of a stock dividend	d.	Payment in full of subscribed shares

____ 69.    What is the accounting for treasury shares?

a.	On repurchase of treasury shares, a gain or loss is recognized equal to the difference between the amount at which the shares were issued and the repurchase price for the shares.
b.	On reissuance of treasury shares, a gain or loss is recognized equal to te difference between the previous repurchase price and the reissuance price.
c.	On repurchase or reissuance of previously repurchased own shares, no gain or loss is recognized.
d.	Treasury shares are accounted for as financial assets.

____ 70.    How would a share split in which the par vlue per share decreases in proportion to the number of addition shares issued affect each of the following?

     Share premium        Retained earnings

a.	Increase                 No effect
b.	No effect               No effect
c.	No effect               Decrease
d.	Increase                Decrease

TOA QUIZZER 2

Answer Section

MULTIPLE CHOICE

   1.   A

   2.   C

   3.   D

   4.   A

   5.   A

   6.   D

   7.   D

   8.   C

   9.   B

10.   D

11.   A

12.   D

13.   C

14.   A

15.   D

16.   C

17.   D

18.   A

19.   B

20.   B

21.   A

22.   C

23.   B

24.   B

25.   C

26.   A

27.   A

28.   D

29.   D

30.   B

31.   C

32.   D

33.   D

34.   A

35.   C

36.   D

37.   C

38.   C

39.   C

40.   A

41.   B

42.   A

43.   B

44.   C

45.   C

46.   A

47.   D

48.   A

49.   A

50.   B

51.   C

52.   D

53.   D

54.   C

55.   D

56.   B

57.   B

58.   D

59.   D

60.   C

61.   B

62.   A

63.   D

64.   B

65.   C

66.   C

67.   A

68.   C

69.   C

70.   B