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    Lobrigas Unit4 Pretest

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    Claudine Lobrigas
    This document contains a 10 question pretest for an Intermediate Accounting 2 class. The pretest covers various topics relating to accounting for notes payable, including: calculating present value of notes at issuance; treatment of discounts/premiums on notes; effective interest rates on notes; debt restructuring; and extinguishing financial liabilities by issuing equity instruments.

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    © All Rights Reserved
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    Lobrigas Unit4 Pretest

    Uploaded by

    Claudine Lobrigas
    56 views2 pages
    This document contains a 10 question pretest for an Intermediate Accounting 2 class. The pretest covers various topics relating to accounting for notes payable, including: calculating present value of notes at issuance; treatment of discounts/premiums on notes; effective interest rates on notes; debt restructuring; and extinguishing financial liabilities by issuing equity instruments.

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    Lobrigas_Unit4_Pretest

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    This document contains a 10 question pretest for an Intermediate Accounting 2 class. The pretest covers various topics relating to accounting for notes payable, including: calculating present value of notes at issuance; treatment of discounts/premiums on notes; effective interest rates on notes; debt restructuring; and extinguishing financial liabilities by issuing equity instruments.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    56 views2 pages

    Lobrigas Unit4 Pretest

    Uploaded by

    Claudine Lobrigas
    This document contains a 10 question pretest for an Intermediate Accounting 2 class. The pretest covers various topics relating to accounting for notes payable, including: calculating present value of notes at issuance; treatment of discounts/premiums on notes; effective interest rates on notes; debt restructuring; and extinguishing financial liabilities by issuing equity instruments.

    Copyright:

    © All Rights Reserved
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    Lobrigas, Claudine L.

    BSIA-IV

    Intermediate Accounting 2

    PRETEST

    1. When an entity issued a note solely in exchange for cash, the present value of the note at
    issuance is equal to
    a. Face amount
    b. Face amount discounted at the prevailing interest rate
    c. Proceeds received
    d. Proceeds received discounted at the prevailing interest rate

    2. If the present value of a note issued in exchange for a property is less than face amount,
    the difference should be
    a. Included in the cost of the asset
    b. Amortized as interest expense over the life of the note
    c. Amortized as interest expense over the life of the asset
    d. Included in interest expense in the year of issuance

    3. An entity borrowed cash from a bank and issued to the bank a short-term noninterest
    bearing note payable. The bank discounted the note at 10% and remitted the proceeds to
    the entity. The effective interest rate paid by the entity in this transaction would be
    a. Equal to the stated discount rate of 10%
    b. More than the stated discount rate of 10%
    c. Less than the stated discount rate of 10%
    d. Independent of the stated discount rate of 10%
    4. At issuance date, the present value of a promissory note is equal to the face amount if the
    note
    a. Bears a stated rate of interest which is realistic.
    b. Bears a stated rate of interest which is less than the prevailing market rate for
    similar notes.
    c. Is noninterest bearing and the implicit interest rate is less than the prevailing
    market rate for similar notes.
    d. Is noninterest bearing and the implicit interest rate is equal to the prevailing market
    rate for similar notes.

    5. Which statement concerning discount on note payable is incorrect?


    a. Discount on note payable may be debited when entity discounts its own note with
    the bank.
    b. The discount on note payable is a deduction from the face amount note payable.
    c. The discount on note payable represents interest charges applicable to future
    periods.
    d. Amortizing the discount on note payable gradually decreases the carrying
    amount of the liability over the life of the note.
    6. In a debt restructuring that is considered an asset swap, the gain on extinguishment is
    equal to
    a. Excess of the fair value of the asset over its carrying amount
    b. Excess of the carrying amount of the debt over the fair value of the asset
    c. Excess of the fair value of the asset over the carrying amount of debt
    d. Excess of the carrying amount of the debt over the carrying amount of the
    asset

    7. For a debt restructuring involving substantial modification of terms, it is appropriate for


    a debtor to recognize a gain when the carrying amount of the debt recognize a gain when
    the carrying amount of the debt
    a. Exceeds the total future cash payments specified by the new terms
    b. Is less than the total future cash payments specified by the new terms
    c. Exceeds the present value of the future cash payments specified by the new
    terms
    d. Is less than the present value of the future cash payments specified by the new
    terms

    8. An entity shall initially measure equity instruments issued to extinguish a financial


    liability at
    a. Fair value of the equity instruments issued
    b. Fair value of the liability extinguished
    c. Par value of the equity instruments issued
    d. Carrying amount of the liability extinguished

    9. The difference between the carrying amount of the financial liability extinguished and
    the fair value of equity instruments issued shall be recognized in
    a. Profit or loss.
    b. Other comprehensive income
    c. Retained earnings
    d. General reserve

    10. The gain or loss from extinguishment of a financial liability by issuing equity
    instruments is presented as
    a. Other comprehensive income
    b. Separate line item in the income statement
    c. Component of other comprehensive income
    d. Component of finance cost

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