Convertible Bonds Accounting, Capital lease conditionality, Types of investments, Cash flows statement significance.
1. If twenty $1,000 convertible bonds with a carrying value of $25,000 are converted into 3,000 shares of $5 par value common stock, the journal entry to record the conversion is
a. Bonds Payable ........................... 25,000
Common Stock ......................... 25,000
b. Bonds Payable ........................... 20,000
Premium on Bonds Payable ................ 5,000
Common Stock ......................... 25,000
c. Bonds Payable ........................... 20,000
Premium on Bonds Payable ................ 5,000
Common Stock ......................... 15,000
Paid-in Capital in Excess of Par ..... 10,000
d. Bonds Payable ........................... 25,000
Discount on Bonds Payable ............ 5,000
Common Stock ......................... 15,000
Paid-in Capital in Excess of Par ..... 5,000
2. Which of the following is not a condition which would require the recording of a lease contract as a capital lease?
a. The lease transfers ownership of the property to the lessee.
b. The lease contains a bargain purchase option.
c. The lease term is less than 75% of the economic life of the leased property.
d. The present value of the lease payments equals or exceeds 90% of the fair market value of the leased property.
3. If the market-value method is used to account for a long-term investment in common stock, dividends received should be
a. credited to the Stock Investments account.
b. credited to the Dividend Revenue account.
c. debited to the Stock Investments account.
d. recorded only when 20% or more of the stock is owned.
4. When an investor owns between 20% and 50% of the common stock of a corporation, it is generally presumed that the investor
a. has insignificant influence on the investee and that the cost method should be used to account for the investment.
b. should apply the cost method in accounting for the investment.
c. will prepare consolidated financial statements.
d. has significant influence on the investee and that the equity method should be used to account for the investment.
5. If the equity method is being used, cash dividends received
a. are credited to Dividend Revenue.
b. require no entry because investee net income has already been recorded at the proper proportion on the investor's books.
c. are credited to the Stock Investments account.
d. are credited to the Revenue from Investment in Stock account.
6. If the cost of an available-for-sale security exceeds its fair value by $40,000, the entry to recognize the loss
a. is not required since the share prices will likely rebound in the long run.
b. will show a debit to an expense account.
c. will show a credit to a contra-asset account that appears in the stockholder's equity section of the balance sheet.
d. will show a debit to an unrealized loss account that is deducted in the stockholders' equity section of the balance sheet.
7. Short-term investments are securities that are readily marketable and intended to be converted into cash within the next
a. year.
b. two years.
c. year or operating cycle, whichever is shorter.
d. year or operating cycle, whichever is longer.
8. The primary purpose of the statement of cash flows is to
a. provide information about the investing and financing activities during a period.
b. prove that revenues exceed expenses if there is a net income.
c. provide information about the cash receipts and cash payments during a period.
d. facilitate banking relationships.
9. The acquisition of land by issuing common stock is
a. a noncash transaction which is not reported in the body of a statement of cash flows.
b. a cash transaction and would be reported in the body of a statement of cash flows.
c. a noncash transaction and would be reported in the body of a statement of cash flows.
d. only reported if the statement of cash flows is prepared using the direct method.
10. The order of presentation of activities on the statement of cash flows is
a. operating, investing, and financing.
b. operating, financing, and investing.
c. financing, operating, and investing.
d. financing, investing, and operating.