TOA QUIZZER 2 b.

Increase Increase
c. Decrease
Multiple Choice 7. A bond issued on June 1 of the current Decrease
Identify the choice that best completes the statement or year has interest payment dates of April 1 d. Decrease Increase
answers the question. and October 1. Bond interest expense for
the current year ended December 31 is for
____ 1. When all bonds mature on a single date, a period of 12. In current accounting practice, the
they are called valuation method used for bonds payable
a. Three months c. Six months is
a. Term bonds c. Debenture bonds b. Four months d. Seven months
b. Serial bonds d. Callable bonds a. Historical cost
b. Discounted cash flow valuation at
8. The market price of a bond issued at a current yield rate
____ 2. Bonds payable issued with scheduled discount is the present value of its c. Maturity amount
maturities at various dates are called principal amount at the market rate of d. Discounted cash flow valuation at
interest yield rate at issuance
a. Convertible bonds c. Serial bonds
b. Term bonds d. Callable bonds a. Less the present value of all future
interest payments at the market rate of 13. A five-year term bond was issued by an
interest. entity on January 1, 2008 at a premium.
____ 3. Costs incurred in connection with the b. Less the present value of all future The carrying amount of the bond at
issuance of ten-year bonds which sold at a interest payments at the rate of interest December 31, 2009 would be
slight premium shall be stated on the bond.
c. Plus the present value of all future a. The same as the carrying amount at
a. Charged to retained earnings when the interest payments at the market rate of January 1, 2008
bonds are issued interest. b. Higher than the carrying amount at
b. Expensed in the year in which incurred d. Plus the present value of all future January 1, 2008
c. Capitalized as organization cost interest payments at the rate of interest c. Higher than the carrying amount at
d. Reported in the statement of financial stated on the bond. December 31, 2010
position as a deduction from bonds d. Lower than the carrying amount at
payable and amortized over the ten- December 31, 2010
year bond term 9. In theory the proceeds from the sale of a
bond would be equal to
14. A five-year term bond was issued by an
____ 4. Unamortized debt discount shall be a. The face amount of the bond entity on January 1, 2008 at a discount.
reported in the statement of financial b. The present value of the principal The carrying amount of the bond at
position of the issuer as a amount due at the end of the life of the December 31, 2009 would be
a. Direct deduction from the face value bond plus the present value of the
of the debt interest payments made during the life a. Higher than the carrying amount at
b. Direct deduction from the present of the bond. December 31, 2008.
value of the debt c. The face amount of the bond plus the b. Lower than the carrying amount at
c. Deferred charge present value of the interest payments December 31, 2008.
d. Part of the issue costs made during the life of the bond. c. The same as the carrying amount at
d. The sum of the face amount of the December 31, 2008.
bond and the periodic interest d. Higher than the carrying amount at
____ 5. The issuer of a 10 year term bond sold at payments. December 31, 2010.
par three years ago with interest payable
May 1 and November 1 each year, shall
report in its December 31 statement of 10. How would the amortization of premium 15. The proceeds from a bond issued with
financial position on bonds payable affect each of the nondetachable share warrants shall be
following? accounted for
a. Liability of accrued interest
b. Addition to bonds payable Carrying value of bond a. Entirely as bond payable
c. Increase in deferred charges b. Entirely as shareholders’ equity
d. Contingent liability Net Income c. Partly as unearned revenue and partly
a. Increase Decrease as bonds payable
b. Increase Increase d. Partly as bonds payable and partly as
____ 6. When the interest payment dates of a bond c. Decrease Decrease shareholders’ equity
are May 1 and November 1, and a bond d. Decrease Increase
issue is sold on June 1, the amount of cash
received by the issuer will be 16. What is the effective interest rate of a
11. How would the amortization of discount bond measured at amortized cost?
a. Decreased by accrued interest from on bonds payable affect each of the
June 1 to November 1 following? a. The stated rate of the bond
b. Decreased by accrued interest from b. The interest rate currently charged by
May 1 to June 1 Carrying value of bond the entity or by others for similar bond
c. Increased by accrued interest from c. The interest rate that exactly discounts
June 1 to November 1 Net Income estimated future cash payments
d. Increased by accrued interest from a. Increase through the expected life of the bond
May 1 to June 1 Decrease or when appropriate, a shorter period
 to the net carrying amount of the bond
d. The basic risk-free interest rate that is
derived from observable government
bond prices
____ 17. For a bond issue which sells for less than
its par value the market rate of interest is
a. Dependent on rate stated on the bond
b. Equal to rate stated on the bond
c. Less than rate stated on the bond
d. Higher than rate stated on the bond
____ 18. What is the market rate of interest for a
bond issue which sells for more than its
par value?
a. Less than rate stated on the bond
b. Equal to rate stated on the bond
c. Higher than rate stated on the bond
d. Independent of rate stated on the bond
____ 19. If bonds are issued at a premium, this
indicates that
a. The yield rate of interest exceeds the
nominal rate
b. The nominal rate of interest exceeds
the yield rate
c. The yield and nominal rates coincide
d. No necessary relationship exists
between the two rates
____ 20. Which of the following is true for a bond
maturing on a single date when the
effective method of amortizing bond
discount is used?
a. Interest expense as a percentage of the
bond’s book value varies from period
to period
b. Interest expense increases each six-
month period
c. Interest expense remains constant each
six-month period
d. Nominal interest rate exceeds effective
interest rate
____ 21. If bonds are initially sold at a discount
and the straight line method of
amortization is used, interest expense in
the earlier years
a. Will exceed what it would have been
had the scientific method of
amortization been used
b. Will be less than what it would have
been had the scientific method of
amortization been used
c. Will be the same as what it would have
been had the scientific method of
amortization been used
d. Will be less than the coupon rate of
interest
22. On January 1 of the current year, an entity a. Unsecured bonds c. Ordinary bonds
issued bonds at a discount. The entity b. Secured bonds d. Serial bonds
incorrectly used the straight line method
instead of the effective interest method to
amortize the discount. How were the 27. When the bonds are sold between interest
following amounts, as of December 31 of dates, any accrued interest is credited to
the current year affected by the error?
a. Interest payable c. Interest
Bond carrying amount receivable
b. Interest revenue d. Bonds payable
Retained earnings
a. Overstated Overstated
b. Understated Understated 28. Which of the following is true of accrued
c. Oberstated Understated interest on bonds that are sold between
d. Understated Overstated interest dates?
a. The accrued interest is computed at the
23. On January 1, 2009, an entity issued bonds effective rate.
at a discount. The bonds mature on b. The accrued interest will be paid to the
December 31, 2014. The entity incorrectly seller when the bonds mature.
used the straight line method instead of the c. The accrued interest is extra income
effective interest method to amortize the for the buyer.
discount. How is carrying amount of the d. None of the above.
bonds affected by the error?
At December 31, 2009 29. Which of the following is true of a
premium on bonds payable?
At December 31, 2014
a. Overstated a. The premium or bonds payable is a
Understated contra shareholders’ equity account.
b. Overstated No effect b. The premium on bonds payable is an
c. Understated account that appears only on the books
Overstated of the investor.
d. Understated No effect c. The premium on bonds payable
increases when amortization entries
are made until it reaches its maturity
24. A 20-year bond was issued at a premium value.
with a call provision to retire the bonds. d. The premium on bonds payable
When the bond issuer exercised the call decreases when amortization entries
provision on an interest date, the call price are made until its balance reaches zero
exceeded the carrying value of the bonds. at the maturity date.
The amount of bond liability removed
from the accounts should have equaled the
30. The net amount of a bond liability that
a. Cash paid appears in the statement of financial
b. Face amount plus unamortized position is the
premium
c. Call price plus unamortized premium a. Call price of the bond plus bond
d. Current market price discount or minus bond premium
b. Face value of the bond plus related
discount or minus related premium
25. A ten-year term bond was issued at a c. Face value of the bond plus related
discount with a call provision to retire the discount or minus related premium
bonds. When the bond issuer exercised the d. Maturity value of the bond plus related
call provision on an interest date, the discount or minus related premium
carrying amount of the bond was less than
the call price. The amount of bond liability
removed from the accounts should have 31. When interest expense is calculated using
equaled the the effective interest method, interest
expense equals the
a. Call price
b. Call price less unamortized discount a. Actual amount of interest paid
c. Face amount less unamortized b. Book value of the bonds multiplied by
discount the stated interest rate
d. Face amount plus unamortized c. Book value of the bonds multiplied by
discount the effective interest rate
d. Maturity value of the bonds multiplied
by the effective interest rate
26. Debentures are

____ 32. When bonds are redeemed by the issuer
prior to their maturity date, any gain or
loss on the redemption is
a. Amortized over the period remaining
to maturity and reported as other
comprehensive income.
b. Amortized over the period remaining
to maturity and reported as part of
income from continuing operations.
c. Reported as component of other
comprehensive income.
d. Reported as part of income from
continuing operations in the period of
redemption.
____ 33. When bonds are retired prior to maturity
with proceeds from a new bond issue, any
gain or loss from the early extinguishment
of debt should be
a. Amortized over the remaining original
life of the retired bond issue
b. Amortized over the life of the new
bond issue
c. Recognized in retained earnings in the
period of extinguishment
d. Recognized in income from continuing
operations in the period of
extinguishment
____ 34. An entity neglected to amortize the
discount on outstanding bonds payable.
What is the effect of the failure to record
discount amortization on interest expense
and bond carrying value, respectively?
a. Understate and understate
b. Understate and overstate
c. Overstate and overstate
d. Overstate and understate
____ 35. An entity neglected to amortize the
premium on outstanding bonds payable.
What is the effect of the failure to record
premium amortization on interest expense
and bond carrying value, respectively?
a. Understate and c. Overstate and
understate overstate
b. Understate and d. Overstate and
overstate understate
____ 36. When shares with par value are sold, the
proceeds shall be credited to the
a. Share capital account
b. Share premium
c. Retained earnings
d. Share capital account to the extent of
the par of the shares issued with any
excess being reflected in share
premium
37. When shares without par value are sold, a. Fair value of the treasury shares
the excess proceeds over stated value shall b. Fair value of the noncash
be credited to consideration received
c. Book value of the noncash
a. Income c. Share premium consideration received
b. Retained d. Shar capital d. Book value of the treasury shares
earnings
44. Which statement is incorrect concerning
38. If shares are issued for a consideration treasury shares?
other than cash, the proceeds shall be
measured by the a. Treasury shares shall be recorded at
cost irrespective of whether acquired
a. Fair value of the shares issued below or above par value.
b. Par value of the shares issued b. The total cost of treasury shares shall
c. Fair value of the consideration be deducted from equity.
received c. Treasury shares may be recognized as
d. Book value of the consideration financial asset.
received d. Gain or loss on sale of treasury shares
shall not be included in profit or loss.
39. In case shares are issued for outstanding
liabilities, what is the measure for 45. “Loss” from sale of treasury shares shall
recording? be charged to
a. Par value of the c. Amount of a. Loss on sale of treasury shares to be
shares issued liabilities set off shown as other expense
b. Fair value of d. Book value of the b. Retained earnings and then share
the shares shares issued premium from treasury shares
issued c. Share premium from treasury shares
and then retained earnings
d. Share premium from original issuance,
40. When shares are issued for services share premium from treasury shares
received, the measure is equal to the and then retained earnings
a. Fair value of c. Book value of
such services the shares 46. Gains and losses on retirement of treasury
issued shares shall not be included in determining
b. Par value of the d. Fair value of income. If the retirement results in a gain,
shares issued the shares such gain shall be credited to
issued
a. Share premium c. Share capital
b. Retained d. Income
41. Treasury shares shall be recorded at cost earnings
irrespective of whether these are acquired
below or above par value. The cost of
treasury shares acquired for noncash 47. Loss on retirement of treasury shares
consideration is usually measured by shall be debited to
a. Fair value of the noncash a. Retained earnings
consideration given b. Share premium from treasury shares
b. Recorded amount of the noncash asset and then to retained earnings
surrendered c. Share premium from treasury shares,
c. Par value of the shares share premium from original issuance
d. Book value of the shares and then to retained earnings
d. Share premium from original issuance,
share premium from treasury shares
42. The total cost of treasury shares shall be and then retained earnings.
reported as
a. Deduction from shareholders’ equity 48. It is issuance by an entity of its own shares
b. Asset to its shareholders without consideration
c. Deduction from retained earnings and under conditions indicating that such
d. Deduction from share premium action is prompted mainly by a desire to
increase the number of shares outstanding
for the purpose of effecting a reduction in
43. If treasury shares are reissued for noncash unit market price.
consideration, the proceeds shall be
measured by a. Share split c. Stock dividend
b. Reverse d. Recapitalization
 share split the corporation when dividends are corporation when the share was
declared. originally issued
b. The right to vote in the election of the
____ 49. Subscriptions receivable and other board of directors of the corporation.
receivables from sale os shares which are c. The right to direct owbership of the 61. When collectibility is reasonably assured,
not collectible currently shall be presented corporate assets. the excess of the subscription price over
as d. The right to share proportionately in the stated value of the no par subscribed
corporate assets in case of liquidation share capital shall be recorded as
a. Deduction from the related subscribed if such assets exceed the claims of
share capital in the shareholders’ creditors. a. No par share capital
equity section b. Share premium when the subscription
b. Current asset is recorded
c. Long-term investment 55. Which of the following is not one of the c. Share premium when the subscription
d. Other asset basic rights of a shareholder? is collected
d. Share premium when the capital is
a. The right to participate in earnings. issued
____ 50. Deposits on subscription to a proposed b. The right to maintain one’s
increase in share capital shall be reported proportional interest in the
as corporation. 62. The issuance of preference shares
c. The right to participate in the proceeds
a. Part of liabilities c. Memorandum of the sale of corporate assets upon a. Increases preference shares
only liquidation of the corporation. outstanding
b. Part of d. Part of retained d. The right to inspect the accounting b. Has no effecton preference shares
shareholders’ earnings records of the corporation. outstanding
equity c. Increases preference shares authorized
d. Decreases preference shares
56. An entity issued rights to its existing authorized
____ 51. In accounting for shareholders’ equity, the shareholders to purchase unissued
accountant is primarily concerned with ordinary shares at more than par value.
which of the following? Share premium would be recorded when 63. When an entity redeems all of its
the rights preference shares for more than the
a. Determining the total amount of original issue price, the excess paid above
shareholders’ equity a. Expire c. Become the original issue price shall be
b. Distinguishing between realized and exercisable
unrealized revenue b. Are exercised d. Are issued a. Accounted for as loss on exchange in
c. Recording the source of each of the the income statement
various elements of shareholders’ b. Charged against share premium of
equity 57. Which of the following is issued to ordinary shares
d. Making sure that the directors do not shareholders of a corporation to acquire its c. Charged to a discount on preference
declare dividends in excess of retained unissued or treasury shares within a shares
earnings specified time at a specified price? d. Charged against retained earnings

a. Share option c. Share dividend

____ 52. Contributed capital does not include b. Share warrant d. Share subscription 64. When preference shares are purchased and
retired by the issuing entity for less than
a. Share premium on ordinary and original issue price, proper accounting for
preference shares 58. Share warrants outstanding shall be the retirement
b. Preference share capital reported as
c. Capital resulting from reissuance of a. Increases the amount of dividends
treasury shares at a price above a. Liability c. Share capital available to ordinary shareholders
acquisition price b. Reduction of d. Share premium b. Increases the contributed capital of the
d. Capital accumulated by retention of share premium ordinary shareholders
earnings c. Increases reported income for the
period
59. When the total shareholders’ equity is d. Increases the treasury shares held by
____ 53. Discount on share capital smaller than the amount of contributed the corporation
capital, this deficiency is called
a. May be recorded as either an asset or
an expense a. A net loss c. A liability 65. The purchase of treasury shares
b. Shall be closed to income summary b. A dividend d. A deficit
account a. Decreases c. Decreases shares
c. May be offset against share premium shares outstanding
on the same class of share capital 60. The par value of an ordinary share authorized
d. None of the above may be done represents b. Decreases d. Has no effect on
shares issued shares
a. The liquidation value of the share outstanding
____ 54. An ordinary shareholder does not possess b. The book value of the share
which of the following? c. The legal nominal value assigned to
the share
a. The right to share in the earnings of d. The amount received by the
____ 66. Treasury shares were acquired for cash at
more than par value, and then a. Increase No effect
subsequently sold for cash at more than b. No effect No effect
acquisition price. What is the effect on c. No effect Decrease
share premium from treasury shares? d. Increase Decrease

Purchase of Sale of
treasury shares
treasury shares
a. Increase Increase
b. Decrease No effect
c. No effect Increase
d. No effect No effect

____ 67. Which of the following statements best

describes the net effect on retained
earnings of the purchase and subsequent
sale of treasury shares?

a. Retained earnings may never be

increased but sometimes decreased.
b. Retained earnings may never be
increased or decreased.
c. Retained earnings sometimes may be
increased but never be decreased.
d. Retained earnings account is always
affected unless the selling price is
exactly equal to cost

____ 68. At the date of the financial statements,

shares issued would exceed shares
outstanding as a result of

a. Declaration of c. Purchase of
share split treasury shares
b. Declaration of a d. Payment in full
stock dividend of subscribed
shares

____ 69. What is the accounting for treasury

shares?

a. On repurchase of treasury shares, a

gain or loss is recognized equal to the
difference between the amount at
which the shares were issued and the
repurchase price for the shares.
b. On reissuance of treasury shares, a
gain or loss is recognized equal to te
difference between the previous
repurchase price and the reissuance
price.
c. On repurchase or reissuance of
previously repurchased own shares, no
gain or loss is recognized.
d. Treasury shares are accounted for as
financial assets.

____ 70. How would a share split in which the par

vlue per share decreases in proportion to
the number of addition shares issued affect
each of the following?

Share premium Retained

earnings
TOA QUIZZER 2
Answer Section 34. A 69. C

MULTIPLE CHOICE 35. C 70. B

1. A 36. D

2. C 37. C

3. D 38. C

4. A 39. C

5. A 40. A

6. D 41. B

7. D 42. A

8. C 43. B

9. B 44. C

10. D 45. C

11. A 46. A

12. D 47. D

13. C 48. A

14. A 49. A

15. D 50. B

16. C 51. C

17. D 52. D

18. A 53. D

19. B 54. C

20. B 55. D

21. A 56. B

22. C 57. B

23. B 58. D

24. B 59. D

25. C 60. C

26. A 61. B

27. A 62. A

28. D 63. D

29. D 64. B

30. B 65. C

31. C 66. C

32. D 67. A

33. D 68. C