41.Financial instruments that are not listed on the balance sheet of a company
a.may involve significant risks that must be disclosed in the notes to the financial statements.
b.are reported as assets if the company can determine the fair value.
c.must be reported as a liability on the balance sheet at the end of the accounting period.
d.must be reported on the income statement.
42.Which one of the following is not a financial instrument?
a.Dividends paid
b.Short-term investment in equity securities
c.Bonds payable
d.Notes receivable
43.Capital leases are rental agreements of which
a.periodic rental payments are recorded as rental revenue on the asset owner’s income statement.
b.the contractual arrangements are similar to a purchase in all respects.
c.the period of the lease is generally a very small portion of the leased asset’s useful life.
d.the lessee desires to have rights to use the asset but not ownership of such asset.
44.Woodsman Company issued $400,000 of 6-year, 6% bonds with interest payments occurring annually at the end of each year. What additional information is needed in order to determine the selling price of these bonds?
a.The face amount of the bonds
b.The bond covenants
c.The market rate of interest
d.The stated rate of interest
45.Gibson Corporation amortizes its bonds using the effective interest method. Which statement is correct?
a.[Interest expense] = [Stated rate] X [Carrying value of the bonds]
b.[Interest expense] – [Cash interest paid] = [Increase in carrying value if sold at a discount]
c.[Cash interest payment] = [Bond face amount] X [Market interest rate]
d.[Interest expense] – [Cash interest paid] = [Increase in carrying value if sold at a premium]
46.GAAP requires the lessee party to a capital lease
a.to record the lease on its balance sheet at the present value of future lease payments.
b.to record rental revenue as each lease payment is received.
c.to depreciate the leased asset.
d.to transfer ownership to the lessee.
47.Operating leases are treated as
a.increases in liabilities for both the lessor and the lessee.
b.a sale if the leased asset has been transferred from the lessor to the lessee.
c.capital leases by the lessee.
d.rental expense by the lessee.
48.Which one of the following is one of the capital lease criteria?
a.The lease term is 75% or more of the useful life of the leased property.
b.Ownership of the property is transferred back to lessor at the end of the lease term.
c.The present value of the lease payments equals or exceeds 75% of the FMV of the property.
d.The lease does not contain a bargain purchase option.
49.Countries throughout the world typically
a.pay extremely large dividends to shareholders.
b.rely heavily on local stock and bond markets.
c.have less comprehensiveaccounting disclosure requirements than the U.S.
d.carry a normal debt/equity ratio that is less than 25%.
50.Investments in bonds are accounted for using
a.historical cost.
b.capital leases.
c.the effective interest method.
d.net realizable value.
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