1. A contingent liability:
a. Definitely exists as liability but its amount and due date are indeterminable.
b. Is accrued even though not reasonably estimated.
c. Is not disclosed in financial statements.
d. Is the result of a loss contingency.
2. When effective interest method is used to amortize bond premium or discount, periodic amortization will
a. Increase if bonds were issued at a discount.
b. Decrease if bonds were issued at a premium.
c. Increase if bonds were issued at a premium.
d. Increase if bonds were issued at either a discount or a premium.
3. On January 1, 2004, Lopez Co. issued its 10% bonds in face amount of $2,000,000, which mature on January 1, 2014. Bonds were issued for $2,270,000 to yield 8%, resulting in bond premium of $270,000. Lopez uses effective interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2004, Lopez's adjusted unamortized bond premium must be:
a. $270,000.
b. $251,600.
c. $243,000.
d. $203,000.
4. Which of the given is not right in regard to trading securities?
a. They are held with intention of selling them in short period of time.
b. Unrealized holding gains and losses are reported as part of net income.
c. Any discount or premium is not amortized.
d. All of these are correct.
5. When company holds between 20% and 50% of outstanding stock of investee, which of the given statements applies?
a. The investor must always use equity method to account for its investment.
b. The investor should use equity method to account for its investment unles circum-stances point to that it is unable to exercise "significant influence" over investee.
c. The investor should use fair value method unless it can clearly demonstrate ability to exercise "significant influence" over the investee.
d. The investor must always use fair value method to account for its investment.