Question : 11.In the situation described in problem 10, if Lee records : 1242690

11.In the situation described in problem 10, if Lee records the asset and note at $11,800, the overall effect will be

a.A correct acquisition cost and correct interest expense

b.A correct acquisition cost and understated interest expense

c.An understated acquisition cost and understated interest expense

d.An overstated acquisition cost and understated interest expense

12.How would the amortization of premium bonds payable affect each of the following?

Carrying value of

BondNet Income

a.Increase                               Decrease

b.IncreaseIncrease

c.DecreaseDecrease

d.DecreaseIncrease

13.For a trouble debt restructuring involving only modification of terms, it is appropriate for a debtor to recognize a gain when the carrying amount of the debt

a.Exceeds the total future cash payments specified by the new terms

b.Is less than the total future cash payments specified by the new terms

c.Exceeds the present value specified by the new terms

d.Is less than the present value specified by the new terms

14.How should the value of warrants attached to a debt security be account for?

a.No value assigned

b.A separate portion of paid-in capital

c.An appropriation of retained earnings

d.A liability

15.For the issuer of a 10-year term bond, the amount of amortization using the interest method would increase each year if the bond was sold at a

DiscountPremium

a.NoNo

b.YesYes

c.NoYes

d.Yes      No

16.Gain contingencies are usually recognized in the income statement when

a.Realized

b.Occurrence is reasonably possible and the amount can be reasonably estimated

c.Occurrence is probable and the amount can be reasonably estimated

d.The amount can be reasonably estimated

17.An estimated loss from a loss contingency should be accrued when

a.It is probable at the date of the financial statements that a loss has been incurred and  the amount of the loss can be reasonably estimated

b.The loss has been incurred by the date of the financial statements and the amount of the loss may be material

c.It is probable at the date of the financial statements that a loss has been incurred and the amount of the loss may be material

d.It is probable that a loss will be incurred in a future period and the amount of the loss can be reasonably estimated

18.When the issuer of bonds exercises the call provision to retire the bonds, the excess of the cash paid over the carrying amount of the bonds should be recognized separately as a (an)

a.Extraordinary loss

b.Extraordinary gain

c.Loss from continuing operations

d.Loss from discontinued operations

19.A two-year note was issued in an arm’s-length transaction at face value solely for cash at the beginning of the year. There were no other rights or privileges exchanged. The interest rate is specified at 10 percent per year. Principal and interest are payable at maturity. The prevailing rate of interest for a loan of this type is 15 percent per year. What annual interest rate should be used to record interest expense for this year and next year?

This yearNext Year

a.10 percent15 percent

b.10 percent10 percent

c.15 percent10 percent

d.15 percent15 percent

20. The interest rate used to calculate the cash interest payments by the issuer of bonds is

a.The market rate of interest

b.The effective interest rate

c.The stated interest rate

d.   Equal to the actual interest expense rate