ACC 311 Test 1 Practice Exam Questions
With Correct Answers
Debt securities acquired by a corporation which are accounted for by not
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recognizing unrealized holding gains or losses are classified as
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a. held-to-maturity debt securities.
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b. trading debt securities.
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c. available-for-sale debt securities.
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d. never-sell debt securities.
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e. premium debt securities - CORRECT ANSWER✔✔-a. held-to-maturity debt
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securities.
An available-for-sale debt security is purchased at a premium. The entry to record
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the interest and amortization includes a
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a. debit to Investment in Available-for-Sale Securities.
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b. credit to Premium account.
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c. debit to Interest income.
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d. credit to Investment in Available-for-Sale Securities
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e. credit to cash. - CORRECT ANSWER✔✔-d. credit to Investment in Available-for-
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Sale Securities
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Permanent value declines (impairments) in available-for-sale securities should be
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a. recorded in the allowance account
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, b. included in income as a realized loss
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c. amortized over the remaining life of the security
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d. recorded similarly to temporary declines in value - CORRECT ANSWER✔✔-b.
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included in income as a realized loss
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When an investor classifies an investment in common stock as available for sale,
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cash dividends are classified by the investor as:
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a. A return of capital.
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b. A loss.
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c. A reduction of the investment account.
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d. Dividend income.
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e. Dividend expense. - CORRECT ANSWER✔✔-d. Dividend income.
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Which of the following statements is not true?
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a. Debt financing increases a company's financial leverage.
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b. Debt financing typically has a higher cost than equity financing.
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c. Debt financing offers an income tax advantage.
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d. Debt does not dilute ownership interests. - CORRECT ANSWER✔✔-b. Debt
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financing typically has a higher cost than equity financing.
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If a company sells its bonds at more than face value, the effective interest rate is
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a. less than the stated interest rate
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b. more than the stated interest rate
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c. equal to the stated interest rate
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With Correct Answers
Debt securities acquired by a corporation which are accounted for by not
| | | | | | | | | | | |
recognizing unrealized holding gains or losses are classified as
| | | | | | | |
a. held-to-maturity debt securities.
| | |
b. trading debt securities.
| | |
c. available-for-sale debt securities.
| | |
d. never-sell debt securities.
| | |
e. premium debt securities - CORRECT ANSWER✔✔-a. held-to-maturity debt
| | | | | | | | |
securities.
An available-for-sale debt security is purchased at a premium. The entry to record
| | | | | | | | | | | |
the interest and amortization includes a
| | | | | |
a. debit to Investment in Available-for-Sale Securities.
| | | | | |
b. credit to Premium account.
| | | |
c. debit to Interest income.
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d. credit to Investment in Available-for-Sale Securities
| | | | | |
e. credit to cash. - CORRECT ANSWER✔✔-d. credit to Investment in Available-for-
| | | | | | | | | | |
Sale Securities
|
Permanent value declines (impairments) in available-for-sale securities should be
| | | | | | | |
a. recorded in the allowance account
| | | | |
, b. included in income as a realized loss
| | | | | | |
c. amortized over the remaining life of the security
| | | | | | | |
d. recorded similarly to temporary declines in value - CORRECT ANSWER✔✔-b.
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included in income as a realized loss
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When an investor classifies an investment in common stock as available for sale,
| | | | | | | | | | | | |
cash dividends are classified by the investor as:
| | | | | | |
a. A return of capital.
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b. A loss.
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c. A reduction of the investment account.
| | | | | |
d. Dividend income.
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e. Dividend expense. - CORRECT ANSWER✔✔-d. Dividend income.
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Which of the following statements is not true?
| | | | | | |
a. Debt financing increases a company's financial leverage.
| | | | | | |
b. Debt financing typically has a higher cost than equity financing.
| | | | | | | | | |
c. Debt financing offers an income tax advantage.
| | | | | | |
d. Debt does not dilute ownership interests. - CORRECT ANSWER✔✔-b. Debt
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financing typically has a higher cost than equity financing.
| | | | | | | |
If a company sells its bonds at more than face value, the effective interest rate is
| | | | | | | | | | | | | | |
a. less than the stated interest rate
| | | | | |
b. more than the stated interest rate
| | | | | |
c. equal to the stated interest rate
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