CA Corporate Accounting 4

Question 1

A company issues $1,000,000 of 8% bonds at 96. What is the carrying value of the bonds at issuance and how is the $40,000 discount treated over the bond's life?

Accepted Answer

Carrying value $960,000; discount added to interest expense each period

Answer

Bonds issued at a discount have a carrying value below face; the discount is amortized, increasing total interest expense over the bond's life.

Question 2

Under the effective-interest method, interest expense in period 1 on a $500,000 bond issued at $478,000 with a stated rate of 6% and effective rate of 7% equals:

Accepted Answer

$33,460

Answer

Interest expense = Carrying value × Effective rate = $478,000 × 7% = $33,460.

Question 3

Which of the following is classified as a financing activity on the statement of cash flows?

Accepted Answer

Payment of dividends to shareholders

Answer

Dividend payments to shareholders are financing activities because they represent transactions with equity providers.

Question 4

A company has total assets of $2,000,000, total liabilities of $800,000, and 50,000 shares outstanding at a market price of $40. What is the book value per common share?

Accepted Answer

$24.00

Answer

Book value per share = (Total assets – Total liabilities) ÷ Shares = $1,200,000 ÷ 50,000 = $24.00.

Question 5

Under ASC 842, an operating lease with a lease term of 5 years requires the lessee to record on the balance sheet:

Accepted Answer

A right-of-use asset and a lease liability

Answer

ASC 842 requires lessees to recognize a right-of-use asset and a corresponding lease liability for virtually all leases with terms exceeding 12 months.

(CA) Certified Accountant Practice Test

(CA) Certified Accountant Practice Test

CA Corporate Accounting 4