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Management 120B Midterm Exam Questions And Answers, Exams of Entrepreneurship

Management 120B Midterm Exam Questions And Answers

Typology: Exams

2024/2025

Available from 07/04/2025

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Management 120B Midterm Exam
Questions And Answers
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)
- The lease grants the lessee an option to purchase the underlying
asset that the lessee is reasonably likely to exercise. (Discount
Purchase Option)
- The lease term is for the major part of the remaining economic life
of the underlying asset. (Useful Life Exhausted) [approx 75%]
- The present value of the sum of the lease payments, including any
residual value guaranteed by the lessee, equals or exceeds
substantially all of the fair value of the underlying asset. (Fair Value
Paid) [approx 90%]
- The underlying asset is of such a specialized nature that it is
expected to have no alternative use to the lessor at the end of the
lease term. (Specialized asset)
When parties enter a finance lease, the lessee records the asset as
if ____________________. As a result, the lessee records the asset
at _____________________. It then _________________ the asset
as if it owns it. It also records a ____________ ________________
equal to ______________________________. Each payment is
then allocated between ________________ and
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Questions And Answers

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)

  • The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably likely to exercise. (Discount Purchase Option)
  • The lease term is for the major part of the remaining economic life of the underlying asset. (Useful Life Exhausted) [approx 75%]
  • The present value of the sum of the lease payments, including any residual value guaranteed by the lessee, equals or exceeds substantially all of the fair value of the underlying asset. (Fair Value Paid) [approx 90%]
  • The underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. (Specialized asset) When parties enter a finance lease, the lessee records the asset as if ____________________. As a result, the lessee records the asset at _____________________. It then _________________ the asset as if it owns it. It also records a ____________ ________________ equal to ______________________________. Each payment is then allocated between ________________ and

Questions And Answers

__________________. -

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? -

Questions And Answers

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. -

Questions And Answers

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)

  1. Credit B/P for the face amount
  2. PLUG for either discount (Debit) or Premium (Credit) What are the 3 steps to record the journal entry for the periodic interest payments on a bond? - correct answer ✅1. Debit interest expense ( = previous period's carrying value x MARKET rate)
  3. Credit cash for the coupon payment amount ( = face value x COUPON rate)
  4. PLUG to amortize discount (credit to amortize) or premium (debit to amortize) What are the steps to record the journal entry for the retirement of a bond? -

Questions And Answers

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:

  1. Debit Bonds Payable (face value, amount that would have been paid out at maturity)
  2. Remove discount (credit) or premium (debit)
  3. Credit common stock at FMV
  4. Plug for gain or loss When bonds are convertible to stock WITH par value, what are the steps for recording the conversion under the BV method? - correct answer ✅Take liability and discount/premium off books, issue stock at par value, then plug for additional paid-in capital:
  5. Debit Bonds Payable
  6. Get rid of associated Premium or Discount
  7. Credit Common Stock at Par Value (shares x par)
  8. Plug for APIC (Credit; APIC + Common Stock at par = B/P)

Questions And Answers

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:

  1. Dr. Bonds Payable
  2. Cr. Stock at Par Value
  3. Cr. APIC (such that 2+3 = FMV of stock)
  4. Plug for gain or loss When bonds are issued with warrants attached, what are the steps to journalize the issuance? - correct answer ✅1. Debit Cash for amount received
  5. Credit B/P for the face amount
  6. Credit Equity-Warrants for the FMV of the warrants issued
  7. Plug for Discount or Premium What are the journal entries when warrants are exercised? - correct answer ✅1. Dr. Equity-Warrants (to take the exercised warrants off the books)

Questions And Answers

correct answer ✅Dr. Estimated Warranty Liability, Cr. Parts/Inventory/Cash How is Pension Expense calculated? - correct answer ✅Pension Expense = Service Cost during year

  • Interest on the PBO during year
  • Interest Earned on Plan Assets during year
  • Prior Service Cost Amortization How is the PBO calculated? - correct answer ✅Projected Benefit Obligation = Sum to date of all Service Costs
  • Prior Service Costs
  • Interest on the above +/- Actuarial Gain/Loss
  • Prior service cost, in full