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Management 120B Midterm Exam Questions And Answers
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What are the situations where a finance lease applies? - correct answer ✅- The lease transfers ownership of the underlying asset to the lessee by the end of the lease term. (Automatic Transfer)
correct answer ✅It had been purchased on credit; fair value = pv of cash payments; depreciates; lease liability; the present value of the cash payments it will make to satisfy the liability; interest; principal By convention at the commencement of a finance lease, a lessor customarily reports the net receivable at its ____________ _______________, and records a contra-asset called _________________ _______________ to reduce the net receivable to its ________________ ___________. - correct answer ✅gross amount (cash amount?); unearned interest; present value How does the lessor record the annual lease payments on a finance lease? -
discounting is done at the ___________________________. - correct answer ✅the present value of the annuity of the coupon payments and the present value of the face amount; the market rate How is interest on a bond calculated? - correct answer ✅Carry value x MARKET Rate of Interest When a bond is sold at a discount, the coupon payments are (more than/less than/equal to) the interest expense. - correct answer ✅less than When a bond is sold at a premium, the coupon payments are (more than/less than/equal to) the interest expense. - correct answer ✅more than A zero coupon bond always carries a (discount/premium). - correct answer ✅discount A zero coupon bond's discount always decreases by _________________________ each period. -
correct answer ✅The full amount of interest accrued (this is because the payment is zero) What are the 3 steps to record the journal entry at the issuance of a bond? - correct answer ✅1. Debit the cash received (Price of bond = PV of cash flows)
When bonds are convertible to stock with no par value, what are the steps for recording the conversion under the Fair Market Value method? - correct answer ✅Take the liability and associated premium/discount off the books, record stock issued at FMV, then plug for gain or loss:
When bonds are convertible to stock WITH par value, what are the steps for recording the conversion under the FMV method? - correct answer ✅Take liability and disc./prem. off the books, issue stock at par value, supplemented to FMV by adding additional paid- in capital, plug for gain or loss:
correct answer ✅Dr. Estimated Warranty Liability, Cr. Parts/Inventory/Cash How is Pension Expense calculated? - correct answer ✅Pension Expense = Service Cost during year