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web.groovymark@gmail.com
- December 12, 2024
Question 41
Which method is typically used to compute depletion?
A. Straight-line method
B. Declining-balance method
C. Units-of-production method
D. Activity method
Answer: C
Explanation: The units-of-production method is commonly used to compute depletion, as it is based on the extraction of natural resources.
Question 42
How is the carrying amount of a bond calculated for the purpose of determining a gain or loss on redemption?
A. Face value less unamortized premium
B. Face value plus accrued interest
C. Face value less unamortized discount
D. Face value plus unamortized premium
Answer: C
Explanation: The carrying amount of a bond is calculated as the face value minus any unamortized discount when determining gains or losses.
Question 43
What happens when stock options are forfeited unexpectedly before they vest?
A. Record a loss in additional paid-in capital
B. Reallocate the remaining compensation expense
C. Reverse the recorded compensation expense to date
D. Credit common stock for the forfeited value
Answer: C
Explanation: When stock options are forfeited before vesting, the compensation expense recorded up to that point must be reversed.
Question 44
How should stock issued for property or services be recorded?
A. At the fair value of the stock issued
B. At the par value of the stock issued
C. At the book value of the stock issued
D. At the lesser of fair value of stock or property received
Answer: A
Explanation: Stock issued for non-cash consideration should be recorded at the fair value of the stock issued or the fair value of the services/property received, whichever is more clearly determinable.
Question 45
What happens when a bond is sold at a premium?
A. The carrying value increases over time
B. The carrying value decreases over time
C. The bond’s interest expense is lower than the cash interest paid
D. The bond’s interest expense is higher than the cash interest paid
Answer: B
Explanation: When bonds are sold at a premium, the carrying value decreases over time as the premium is amortized.
Question 46
What is the payout ratio?
A. Net income / Preferred dividends
B. Cash dividends / (Net income – Preferred dividends)
C. Retained earnings / Total dividends
D. Cash dividends / Common stockholders’ equity
Answer: B
Explanation: The payout ratio measures the percentage of earnings paid out as dividends, calculated by dividing cash dividends by net income minus preferred dividends.
Question 47
How should bond issuance costs be treated?
A. Expensed in the period incurred
B. Deducted from the bond premium
C. Accumulated in a deferred charge account and amortized
D. Recorded as a current liability
Answer: C
Explanation: Bond issuance costs are treated as deferred charges and are amortized over the life of the bond.
Question 48
What does the term “weighted average common shares outstanding” refer to?
A. Shares outstanding at the end of the year
B. Shares outstanding at the beginning of the year
C. Time-weighted number of shares outstanding during the year
D. Average shares outstanding over the past two years
Answer: C
Explanation: The weighted average common shares outstanding is the number of shares outstanding during the year, weighted by the time they were outstanding.
Question 49
How is the times interest earned ratio calculated?
A. (Net income + Interest expense) / Interest expense
B. (Net income + Income tax expense) / Interest expense
C. (Net income + Interest expense + Income tax expense) / Interest expense
D. Net income / Interest expense
Answer: C
Explanation: Times interest earned is calculated by adding net income, interest expense, and income tax expense and dividing the total by interest expense to show the company's ability to cover interest payments.
Question 50
What is the book value of a plant asset equal to?
A. The balance of the related accumulated depreciation account
B. The fair market value of the asset at a balance sheet date
C. The assessed value of the asset for property tax purposes
D. The asset’s acquisition cost less the total related depreciation recorded to date
Answer: D
Explanation: The book value of a plant asset is the asset's acquisition cost minus the total accumulated depreciation recorded to date.
