Question Details

LESSON 10
Question 1		(10 points) Save

The interest rate that is printed on the bond certificate always is the same as each of the following except one, which is:
 
1)	Stated rate.
 
2)	Contract rate.
 
3)	Nominal rate.
 
4)	Effective rate.
Question 2		(10 points) Save

Nickel Inc. owns $100,000 of 10-year, 6% bonds as an investment on December 31, 2005. The bonds have 3 years remaining to maturity. The unamortized premium remaining on these bonds was $6,000. Nickel uses straight-line amortization. On May 1, 2006, $10,000 of the bonds were redeemed at 110. How much, and what type of gain or loss, results from this redemption?
 
1)	$467 ordinary gain.
 
2)	$467 extraordinary gain.
 
3)	$467 extraordinary loss.
 
4)	$467 ordinary loss.
Question 3		(10 points) Save

Which of the following indicates the margin of safety provided to creditors?
 
1)	Rate of return on shareholders' equity.
 
2)	Times interest earned ratio.
 
3)	Gross margin.
 
4)	Debt to equity ratio.
Question 4		(10 points) Save

When an equipment dealer receives a long-term note in exchange for equipment, the present value of the future cash flows received on the notes:
 
1)	Is treated as a current liability at the exchange date.
 
2)	Is recorded as interest revenue at the exchange date.
 
3)	Is recorded as interest receivable at the exchange date.
 
4)	Is credited to sales revenue at the exchange date.
Question 5		(10 points) Save

On January 1, 2006, Zebra Corporation issued 1,000 of its 8%, $1,000 bonds at 98. Interest is payable semiannually on January 1 and July 1. The bonds mature on January 1, 2016. Zebra paid $50,000 in bond issue costs. Zebra uses the straight-line amortization method. What is the bond carrying value reported on the December 31, 2006, balance sheet?
 
1)	$1,045,000.
 
2)	$1,040,000.
 
3)	$987,000.
 
4)	$982,000.
Question 6		(10 points) Save

To evaluate the risk and quality of an individual bond issue, savvy investors rely heavily on:
 
1)	Bond ratings provided by financial investment services such as Moody's.
 
2)	Newspaper articles.
 
3)	Bond interest payments.
 
4)	The company's audit report.
Question 7		(10 points) Save

Bonds payable should be reported as a long-term liability on the balance sheet of the issuing corporation at:
 
1)	Face value price less any unamortized discount or plus any unamortized premium.
 
2)	Current bond market price.
 
3)	Face value less any unamortized premium or plus any unamortized discount.
 
4)	Face value less accrued interest since the last interest payment date.
Question 8		(10 points) Save

For a bond issue that sells for more than the bond face amount, the effective interest rate is:
 
1)	The rate printed on the face of the bond.
 
2)	The Wall Street Journal prime rate.
 
3)	More than the rate stated on the face of the bond.
 
4)	Less than the rate stated on the face of the bond.
Question 9		(10 points) Save

An amortization schedule for a bond issued at a premium:
 
1)	Summarizes the amortization of the premium, a contra-asset account with a credit balance.
 
2)	Is contained in the balance sheet.
 
3)	Is a schedule that reflects the changes in the debt over its term to maturity.
 
4)	All of the above are correct.





Question 10		(10 points) Save

The unamortized balance of discount on bonds payable is reported on the balance sheet as:
 
1)	A prepaid expense.
 
2)	An expense account.
 
3)	A current liability.
 
4)	A contra-liability.

Lesson 11
Question 1		(10 points) Save

Goofy Inc. bought 15,000 shares of Crazy Co.'s stock for $150,000 on May 5, 2005, and classified the stock 
as available for sale. The market value of the stock declined to $118,000 by December 31, 2005. Goofy 
reclassified this investment as trading securities in December of 2006 when the market value had risen to 
$125,000. What effect on 2006 income should be reported by Goofy for the Crazy Co. shares?
 
1)	$0.
 
2)	$25,000 net loss.
 
3)	$7,000 net gain..
 
4)	$32,000 net loss.
Question 2		(10 points) Save

The equity method of accounting for investments in voting common stock is appropriate when:
 
1)	The investor can significantly influence the investee.
 
2)	The investor has voting control over the investee.
 
3)	The investor intends to vote the common stock.
 
4)	The investor is assured of a continued supply of a valuable raw material.
Question 3		(10 points) Save

Securities that are purchased with the intent of selling them in the near future to take advantage of short-term 
price changes are classified as:
 
1)	Securities available for sale.
 
2)	Consolidating securities.
 
3)	Held-to-maturity securities.
 
4)	Trading securities.
Question 4		(10 points) Save

When the equity method of accounting for investments is used by the investor, the investment account is 
increased when:
 
1)	A cash dividend is received from the investee.
 
2)	The investee reports a net income for the year.
 
3)	The investor records additional depreciation related to the investment.
 
4)	The investee reports a net loss for the year.
Question 5		(10 points) Save

The rules of FASB Statement No. 115, "Accounting for Certain Debt and Equity Securities," generally apply 
when the percentage of ownership of another company is:
 
1)	Less than 20%.
 
2)	20% to 50%.
 
3)	Over 50%.
 
4)	Exactly 100%.
Question 6		(10 points) Save

The investment category for which the investor's "positive intent and ability to hold" is important is:
 
1)	Securities reported under the equity method.
 
2)	Trading securities.
 
3)	Securities classified as held to maturity.
 
4)	Securities available for sale.
Question 7		(10 points) Save

Jack Corporation purchased a 20% interest in Jill Corporation for $1,500,000 on January 1, 2006. Jack can 
significantly influence Jill. On December 10, 2006, Jill declared and paid $1 million in dividends. Jill reported a 
net loss of $6 million for the year. What amount of loss should Jack report on its income statement for 2006 
relative to its investment in Jill?
 
1)	$1 000,000.
 
2)	$1,200,000.
 
3)	$1,400,000.
 
4)	$1,500,000.
Question 8		(10 points) Save

Both fair values and subsequent growth of the investee are irrelevant for investments in which of the 
following categories?
 
1)	Securities reported under the equity method.
 
2)	Trading securities.
 
3)	Held-to-maturity securities.
 
4)	Securities available for sale.
Question 9		(10 points) Save

Sox Corporation purchased a 40% interest in Hack Corporation for $1,500,000 on Jan 1, 2006. On 
November 1, 2006, Hack declared and paid $1 million in dividends. On December 31, Hack reported a net loss 
of $6 million for the year. What amount of loss should Sox report on its income statement for 2006 relative to 
its investment in Hack?
 
1)	$1,100,000.
 
2)	$2,400,000.
 
3)	$1,500,000.
 
4)	$1,600,000.
Question 10		(10 points) Save

The income statement reports changes in fair value for which type of securities?
 
1)	Securities reported under the equity method.
 
2)	Trading securities
 
3)	Held-to-maturity securities.
 
4)	Securities available for sale.

		

Lesson 12
Question 1		(10 points) Save

Taxpayers who reach age 70 1/2 in the current year and have not started to withdraw their IRA fund have until what date in the next year to start withdrawing these funds to avoid a late withdrawal penalty?
 
1)	February 1
 
2)	March 1
 
3)	April 1
 
4)	April 15
 
5)	None of the above
Question 2		(10 points) Save

For the first 8 months of 2005, medical travel expenses are deductible at the standard mileage rate of:
 
1)	10 cents per mile.
 
2)	12 cents per mile.
 
3)	15 cents per mile.
 
4)	36 cents per mile.
 
5)	None of the above.
Question 3		(10 points) Save

For the current year, Fred and Sharon Miner (ages 66 and 64, respectively) will file a joint tax return and claim the standard deduction. While Sharon is legally blind, Fred's vision is perfect. The Miners fully support Arthur, their 45-year-old unmarried son. His gross income for the current year is $1,000. The amount that the Miners may claim as a standard deduction for the current year is:
 
1)	$10,000.
 
2)	$11,000.
 
3)	$12,000.
 
4)	$13,000.
 
5)	None of the above.
Question 4		(10 points) Save

The taxpayer filing status that invokes the highest tax for $75,000 of taxable income is:
 
1)	married filing jointly.
 
2)	married filing separately.
 
3)	head of household.
 
4)	surviving spouse.
 
5)	single.
Question 5		(10 points) Save

Ann Bolen's husband died last year. Ann maintains a household where she and her 8-year-old daughter reside for the tax year. On her tax return, she properly claims a dependency exemption for her daughter. For the current year, Ann should file her tax return as:
 
1)	married taxpayer filing separately.
 
2)	surviving spouse.
 
3)	head of household.
 
4)	single individual.
 
5)	none of the above.
Question 6		(10 points) Save

The amount deductible for exemptions is phased down when adjusted gross income (AGI) exceeds a certain threshold amount. The phasedown for all taxpayers except those who file married filing separately is:
 
1)	one percentage point for each $2,500 of AGI (or fraction thereof) in excess of the threshold phase-down amount.
 
2)	two percentage points for each $2,500 of AGI (or fraction thereof) in excess of the threshold amount.
 
3)	three percentage points for each $2,500 of AGI (or fraction thereof) in excess of the threshold amount.
 
4)	four percentage points for each $2,500 of AGI in excess of the threshold amount.
 
5)	none of the above.
Question 7		(10 points) Save

John pays his former wife Rose $3,100 in alimony and $400 in child support each month. For the current year, Rose must include in gross income:
 
1)	$0.
 
2)	$4,800.
 
3)	$37,200.
 
4)	$42,000.
 
5)	None of the above.
Question 8		(10 points) Save

What is the standard mileage rate for computing the deductible cost of operating a car for business purposes during the first 8 months of 2005?
 
1)	$0.10
 
2)	$0.14
 
3)	$0.36
 
4)	$0.405
 
5)	None of the above
Question 9		(10 points) Save

Which of the following is not a criterion used in determining whether an event qualifies as a casualty?
 
1)	Sudden
 
2)	Uninsurable
 
3)	Unusual
 
4)	Unexpected
 
5)	All of the above are criteria used in determining whether an event qualifies as a casualty
Question 10		(10 points) Save

Frank Smith will celebrate his 65th birthday on January 1, 2006. Frank lives with his wife, Mary, who is 62 years of age. Neither Frank nor Mary is blind. On their joint tax return for 2005, Frank and Mary may claim a standard deduction of:
 
1)	$6,000.
 
2)	$10,000.
 
3)	$11,000.
 
4)	$12,000.
 
5)	None of the above.