BUSI 2002 Study Guide - Midterm Guide: Effective Interest Rate, Current Liability, Financial Statement

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15 Feb 2016
Department
Course
Professor
BUSI 2002 – Intermediate Accounting 2
Summer 2013
TEST 1
You have 90 minutes to complete this exam
There are 46 marks available on this exam. It has 5 pages.
This exam comprises of 6 multiple choice questions and 5 short-answer questions.
Reply to all questions under IFRS, unless otherwise stated.
Please complete all your answers (including multiple choice) in the test booklet.
You are only allowed a financial calculator for this test.
Please show your calculations.
PART 1 – MULTIPLE CHOICE QUESTIONS
(12 marks – 2 marks each) (22 minutes total)
1)
You offer an incentive program to your customers. For every $1 of sales, you give 1
point. Points can then be used to redeem merchandise. Every 1,000 points can be used
to redeem merchandise having a retail value of $10. On average, 70% of all points are
redeemed. Total sales (not including incentive program) for the current year were
$10,000,000 and 7,500,000 points were redeemed. What total revenues will you
report?
a) $9,930,000
b) $9,995,000
c) $10,005,000
d) $10,070,000
e) $10,700,000
2)
Company X and Company Y issued bonds during 2011. The bonds had identical terms
except Company X issued the bonds at a discount and Company Y issued the bonds at a
premium. Assuming the bonds are repaid at their maturity date, which Company will
record a higher interest expense over the life of the bonds?
A) Company X
B) Company Y
C) The Companies will record an identical amount of interest expense
D) It would depend on the identical maturity date of the bonds
E) It would depend on the identical interest rate of the bonds
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3)
Which statement is incorrect?
A) From the bond issuers perspective, bond issue costs result in a higher effective
interest rate on a bond.
B) Compensated absences liabilities (i.e. accrued vacation liabilities, etc…) should
consider future salary increases.
C) A constructive obligation is based on a contractual agreement between parties
D) Discounting of liabilities should generally be done when the effect is material.
4)
Company E purchases equipment in exchange for a note of $6,000,000 due in 3 years.
The cash purchase price of the equipment would have been $5,000,000. What rate is
closest to the implied rate?
a) 4.3%
b) 5.3%
c) 5.8%
d) 6.3%
e) 7.3%
5)
For dividends, which of the following dates does not result in an accounting entry?
a) Date of declaration
b) Record date
c) Payment date
d) They all require accounting entries
6)
Company G and Company H issued bonds and shares during 2011. The bonds and
common shares had identical terms and had an identical amount of proceeds from
issuance. The only difference is that Company G paid debt issue costs but no share issue
costs, and Company H paid share issue costs, but no debt issue costs. In 2011, the
companies had identical net income before the effect of debt and share transactions.
Which company would have higher net income after the effect of the debt and share
transactions for 2011?
A) Company G
B) Company H
C) The Companies will record an identical amount of net income
D) It would depend on the identical maturity date of the bonds
E) It would depend on if the debt issue costs exceeded the share issue costs
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