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Home / Questions / Ace Corporation has a debt to total assets ratio of 65%. This tells the user of Ace’s fin

Ace Corporation has a debt to total assets ratio of 65%. This tells the user of Ace’s fin

Ace Corporation has a debt to total assets ratio of 65%.  This tells the user of Ace’s financial statements

a.Ace is getting a 35% return on its assets

b.There is a risk Ace cannot pay its debts as they come due

c.65% of the assets are financed by the stockholders

d.Ace  should issue more debt  to reduce its risk

22. Trading on the equity (leverage) refers to the

a.Amount of working capital

b.Amount of capital provided by owners

c.Use of borrowed money to increase the return to owners

d.Number of times interest is earned

23.The current accounting treatment for convertible debt is to treat it as straight debt.  This treatment can be defended on what basis?

a.Convertible debt is a complex financial instrument.

b.Convertible debt comprises two financial instruments – a debt instrument and the option to convert.

c.The debt instrument and the option to convert are not separable.

d.The option to convert is equity.

24.XYZ Company’s yearend is December 31, 20x1 and its financial statements are issued in the following March.  On January 24, 20x2.  A 10 year note payable came due and was paid by issuing XYZ common stock to the creditor.  In its December 31, 20x1 balance sheet, XYZ should

a.Report the note as a current liability because it was due on January 24, 20x2 – only 24 days after the year end.

b.Report the note as a long-term liability because it was not paid off with a current asset or replaced by another current liability.

c.Report the note as a long-term liability because it was extinguished (paid off) on January 24, 20x2 – 24 days after the year end.

d.Report the note as a long-term liability because it was a 10 year note.

25.A zero coupon bond is different from a typical bond issue because

a.The investor can clip the coupons and get paid for the periodic interest on the bond while a typical bond does not have coupons.

b.It is reported in the balance sheet net of the discount on the bond.

c.The zero coupon bond’s deep discount is reported as an asset and a typical bond that is issued at a discount is reported net of the discount.

d.It does not pay any periodic interest while the typical bond does.

26.An unearned revenue is an example of a(an)

a.Deferred credit.

b.Accrued liability.

c.Customer billing that takes place before a job is finished.

d.Accounts receivable.

27.A deferred credit meets the definition of a liability because

a.It is a probable future sacrifice of assets as the result of a past transaction or event.

b.It is a present obligation to transfer assets to another entity.

c.It is an accrual representing an obligation to pay money in the future.

d.It is a present obligation to provide services to another entity.

28.The physical capital maintenance concept of income would require that a company’s bonds payable be

a.Reported in the balance sheet at their amortized issue price and that changes in their market values be reported in earnings.

b.Reported in the balance sheet at their amortized issue price and that changes in their  market values not be reported in earnings.

c.Reported in the balance sheet at their fair market values and that changes in their market values be reported in earnings.

d.Reported in the balance sheet at their fair market values and that changes in their market values be reported in other comprehensive income.

29.ABC Company has a note payable that is due six months after its year end.  Under which of the following conditions will ABC be able to classify the note as a long term debt.

a.ABC cannot classify the note as long term because it is due within the current operating cycle or one year, whichever is longer.

b.ABC can classify the note as long term because it is due next year.

c.ABC can classify the note as long term because management intends to refinance it with long term debt and has an agreement to do so with a qualified creditor.

d.ABC can classify the note as long term because it is a 10 year note and management intends to pay the maturity value at the end of the 10 year period.

30.Current accounting treatment for gain contingencies is different from the accounting treatment for loss contingencies.  Which accounting concept is this differential concept consistent with?

a.Conservatism

b.Materiality

c.Full disclosure

d.Revenue recognition

31.In general, derivative instruments are

a.Not reported in a company’s balance sheet because their impact on the company is not yet known..

b.Reported in the balance sheet at fair value and changes in their fair value are reported in earnings.

c.Reported in the balance sheet at historical cost and changes in their fair value are reported in earnings.

d.Reported in the balance sheet at fair value and changes in their fair value are reported in other comprehensive income.

32.Under a troubled debt restructuring that results in a modification of terms the debtor will report interest expense when

a.The debtor reports a gain on restructuring.

b.The future cash flows under the restructuring agreement are less than the company’s obligation at the date the restructuring takes place.

c.Always because the troubled debtor has a new agreement that obligates the company to make payments in the future.

d.The debtor reports no gain on restructuring.

 

 

Dec 09 2019 View more View Less

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