INTERMEDIATE ACCOUNTING 1 EXAM WITH
REAL QUESTIONS AND WELL VERIFIED
ANSWERS || GUARANTEED PASS || ALREADY
GRADED A+ || LATEST UPDATE
Which of the following is not a reason to consider a decline in the fair value of a
debt investment to be "other than temporary"?
A. The investor determines that a credit loss exists on the investment.
B. The investor intends to sell the investment.
C. The investor believes it is "more likely than not" that the investor will be
required to sell the investment prior to recovering the amortized cost of the
investment less any credit losses arising in the current year.
D. The investor intends to hold the investment to maturity. - ANSWER-D. The
investor intends to hold the investment to maturity.
Assume that Nichols concludes that the Holly bonds are other-than-temporarily
impaired because Nichols is planning to sell the bonds in the near future.
Before-tax net income for 2013 will be reduced by:
A. $0.
B. $10,000.
C. $20,000.
D. $30,000. - ANSWER-D. $30,000
Dicker Furriers purchased 1,000 shares of Loose Corporation stock on January
10, 2012, for $800 per share and classified the investment as securities available
for sale. Loose's market value was $400 per share on December 31, 2012, and
the decline in value was viewed as temporary. As of December 31, 2013, Dicker
,still owned the Loose stock whose market value had declined to $100 per share.
The decline is due to a reason that's judged to be other than temporary. Dicker's
December 31, 2013, balance sheet and the 2013 income statement would show
the following:
A. Option a
B. Option b
C. Option c
D. Option d - ANSWER-A. Option a
Which of the following is not an example of a derivative?
A. Interest rate swap.
B. Cash.
C. Stock option.
D. Forward contract. - ANSWER-B. Cash.
Which of the following is not true about derivatives?
A. Large losses on derivative investments have been reported in the press.
B. Derivatives are so named because their value is derived from some
underlying measure.
C. Derivatives are useful instruments for managing risk.
D. Accounting for derivatives is fully resolved and no additional rules or
interpretations are likely. - ANSWER-D. Accounting for derivatives is fully
resolved and no additional rules or interpretations are likely.
The journal entries for the _____________, ___________, and __________
approaches under the proposed ASU correspond to those used for the held-to-
maturity, trading security, and available-for-sale approaches, respectively, in
current GAAP.
A. FV-NI, FV-OCI, amortized cost
B. FV-OCI, amortized cost, FV-NI
C. Amortized cost, FV-NI, FV-OCI
,D. The journal entries do not correspond. - ANSWER-C. Amortized cost, FV-
NI, FV-OCI
Which of the following is not true about recognizing unrealized gains and losses
on equity investments?
A. If the investor does not have significant influence over the investee, the
equity investment is always accounted for as FV-NI.
B. The investor can use the FV-OCI approach if the equity is held for purposes
of maximizing return on investment or managing risk.
C. The investor will recognize unrealized gains and losses in earnings in the
period in which fair value of the investment changes.
D. If the investor has significant influence but not control over the investee, the
equity method is used. - ANSWER-B. The investor can use the FV-OCI
approach if the equity is held for purposes of maximizing return on investment
or managing risk.
Which of the following is a criterion for a debt instrument to be viewed as
having a lending or customer financing business purpose?
A. Debt instrument is held for the purpose of being sold.
B. Investor's purpose is collecting cash flows.
C. Investor cannot renegotiate, sell, or settle the debt to minimize losses due to
deteriorating credit quality.
D. Investment is actively managed internally on a fair value basis but doesn't
qualify for FV-OCI. - ANSWER-B. Investor's purpose is collecting cash flows.
Which of the following is not a characteristic of "simple" debt?
A. Investor's purpose is collecting cash flows.
B. An amount of principal (adjusted for premium or discount) is transferred to
the borrower at issuance that will be returned to the debt holder when the debt
matures.
C. The debt instrument is not a derivative.
, D. The debt cannot be prepaid or settled in a way that the investor does not
recover substantially all of its original investment unless that is what the
investor chooses. - ANSWER-A. Investor's purpose is collecting cash flows.
If a debt instrument is viewed as complex, which of the following is most likely
not true?
A. The debt is always classified as FV-NI.
B. The investor will recognize large unrealized losses in the period in which fair
value of the debt changes.
C. The debt may be accounted for at FV-OCI, depending on the investor's
business purpose for holding the debt.
D. The debt may be a derivative. - ANSWER-C. The debt may be accounted for
at FV-OCI, depending on the investor's business purpose for holding the debt.
Brown, Inc., purchased an equity investment for the purposes of maximizing its
return on investment. How should Brown account for the investment?
A. Amortized cost.
B. FV-NI.
C. FV-OCI.
D. Cost method. - ANSWER-B. FV-NI.
Cortez Associates purchased a debt investment that meets the characteristics of
a simple debt instrument. Cortez intends to hold the debt for purposes of
maximizing its return on investment. How should Cortez account for the
investment?
A. Amortized cost.
B. FV-NI.
C. FV-OCI.
D. Cost method. - ANSWER-C. FV-OCI.
REAL QUESTIONS AND WELL VERIFIED
ANSWERS || GUARANTEED PASS || ALREADY
GRADED A+ || LATEST UPDATE
Which of the following is not a reason to consider a decline in the fair value of a
debt investment to be "other than temporary"?
A. The investor determines that a credit loss exists on the investment.
B. The investor intends to sell the investment.
C. The investor believes it is "more likely than not" that the investor will be
required to sell the investment prior to recovering the amortized cost of the
investment less any credit losses arising in the current year.
D. The investor intends to hold the investment to maturity. - ANSWER-D. The
investor intends to hold the investment to maturity.
Assume that Nichols concludes that the Holly bonds are other-than-temporarily
impaired because Nichols is planning to sell the bonds in the near future.
Before-tax net income for 2013 will be reduced by:
A. $0.
B. $10,000.
C. $20,000.
D. $30,000. - ANSWER-D. $30,000
Dicker Furriers purchased 1,000 shares of Loose Corporation stock on January
10, 2012, for $800 per share and classified the investment as securities available
for sale. Loose's market value was $400 per share on December 31, 2012, and
the decline in value was viewed as temporary. As of December 31, 2013, Dicker
,still owned the Loose stock whose market value had declined to $100 per share.
The decline is due to a reason that's judged to be other than temporary. Dicker's
December 31, 2013, balance sheet and the 2013 income statement would show
the following:
A. Option a
B. Option b
C. Option c
D. Option d - ANSWER-A. Option a
Which of the following is not an example of a derivative?
A. Interest rate swap.
B. Cash.
C. Stock option.
D. Forward contract. - ANSWER-B. Cash.
Which of the following is not true about derivatives?
A. Large losses on derivative investments have been reported in the press.
B. Derivatives are so named because their value is derived from some
underlying measure.
C. Derivatives are useful instruments for managing risk.
D. Accounting for derivatives is fully resolved and no additional rules or
interpretations are likely. - ANSWER-D. Accounting for derivatives is fully
resolved and no additional rules or interpretations are likely.
The journal entries for the _____________, ___________, and __________
approaches under the proposed ASU correspond to those used for the held-to-
maturity, trading security, and available-for-sale approaches, respectively, in
current GAAP.
A. FV-NI, FV-OCI, amortized cost
B. FV-OCI, amortized cost, FV-NI
C. Amortized cost, FV-NI, FV-OCI
,D. The journal entries do not correspond. - ANSWER-C. Amortized cost, FV-
NI, FV-OCI
Which of the following is not true about recognizing unrealized gains and losses
on equity investments?
A. If the investor does not have significant influence over the investee, the
equity investment is always accounted for as FV-NI.
B. The investor can use the FV-OCI approach if the equity is held for purposes
of maximizing return on investment or managing risk.
C. The investor will recognize unrealized gains and losses in earnings in the
period in which fair value of the investment changes.
D. If the investor has significant influence but not control over the investee, the
equity method is used. - ANSWER-B. The investor can use the FV-OCI
approach if the equity is held for purposes of maximizing return on investment
or managing risk.
Which of the following is a criterion for a debt instrument to be viewed as
having a lending or customer financing business purpose?
A. Debt instrument is held for the purpose of being sold.
B. Investor's purpose is collecting cash flows.
C. Investor cannot renegotiate, sell, or settle the debt to minimize losses due to
deteriorating credit quality.
D. Investment is actively managed internally on a fair value basis but doesn't
qualify for FV-OCI. - ANSWER-B. Investor's purpose is collecting cash flows.
Which of the following is not a characteristic of "simple" debt?
A. Investor's purpose is collecting cash flows.
B. An amount of principal (adjusted for premium or discount) is transferred to
the borrower at issuance that will be returned to the debt holder when the debt
matures.
C. The debt instrument is not a derivative.
, D. The debt cannot be prepaid or settled in a way that the investor does not
recover substantially all of its original investment unless that is what the
investor chooses. - ANSWER-A. Investor's purpose is collecting cash flows.
If a debt instrument is viewed as complex, which of the following is most likely
not true?
A. The debt is always classified as FV-NI.
B. The investor will recognize large unrealized losses in the period in which fair
value of the debt changes.
C. The debt may be accounted for at FV-OCI, depending on the investor's
business purpose for holding the debt.
D. The debt may be a derivative. - ANSWER-C. The debt may be accounted for
at FV-OCI, depending on the investor's business purpose for holding the debt.
Brown, Inc., purchased an equity investment for the purposes of maximizing its
return on investment. How should Brown account for the investment?
A. Amortized cost.
B. FV-NI.
C. FV-OCI.
D. Cost method. - ANSWER-B. FV-NI.
Cortez Associates purchased a debt investment that meets the characteristics of
a simple debt instrument. Cortez intends to hold the debt for purposes of
maximizing its return on investment. How should Cortez account for the
investment?
A. Amortized cost.
B. FV-NI.
C. FV-OCI.
D. Cost method. - ANSWER-C. FV-OCI.
