Accounting Skills (Securities, Derivatives and Investments) MCQs (Chapterwise Multiple Choice Questions)

The FASB requires companies to show in income each period the change in the fair value of any derivative that _________________.

attempts to reduce the risk in future steams of cash flows

does not attempt to hedge fair value or cash flow

Both (a) and (b)

Neither (a) nor (b)

Answer & Explanation

Correct Answer: does not attempt to hedge fair value or cash flow

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A lease must be accounted for as a capital lease if it meets any one of four conditions. Which of the following is NOT one of those conditions?

The lease contains a bargain purchase price option.

The lease transfers ownership of property to the lessee.

The lease term is 90 percent or more of the estimated economic life of the leased property.

All of the above are conditions that would cause the lease to be capitalized

Answer & Explanation

Correct Answer: The lease term is 90 percent or more of the estimated economic life of the leased property.

Note: This Question is unanswered, help us to find answer for this one

XYZ Company acquires marketable securities in Year 1 at a cost of $90,000. The securities can be readily converted into cash and XYZ Company intends to do so when it needs cash. How would XYZ Company report this investment on its Year 1 Balance Sheet?

As a current asset in the Marketable Securities account

As a current asset in the Investment in Securities account

As a noncurrent asset in the Marketable Securities account

As a noncurrent asset in the Investment in Securities account

Answer & Explanation

Correct Answer: As a current asset in the Marketable Securities account

Note: This Question is unanswered, help us to find answer for this one

What gives the lessee the right to purchase the asset for a price less than the predicted fair market value of the asset when the option is exercised?

Tax Form

Stock Option Agreement

Loan Agreement

Bargain Purchase Option

Answer & Explanation

Correct Answer: Bargain Purchase Option

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XYZ Company includes in its book income $75,000 of interest on municipal bonds. The company reports a current liability of $270,000 for income tax payable on its Balance Sheet. The tax rate is 30 percent. What net income will XYZ Company report on its Income Statement?

$705,000

$900,000

$975,000

$630,000

Answer & Explanation

Correct Answer: $975,000

Note: This Question is unanswered, help us to find answer for this one

In the _________________, the owner or lessor merely sells the rights to use the property to the lessee for a specified period.

operating lease method

capital lease method

owner lease method

buyer lease method

Answer & Explanation

Correct Answer: operating lease method

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In which of the following situations would the lessee enjoy the economic benefits and bear the economic risks of leasing an asset?

An asset with an economic life of 10 years is leased for 4 years.

The lease agreement contains a bargain purchase option.

At the end of the lease term, the lessee returns the leased asset to the lessor.

The present value of the lease payments is $70,000 and the fair market value of the leased asset is $95,000.

Answer & Explanation

Correct Answer: The lease agreement contains a bargain purchase option.

Note: This Question is unanswered, help us to find answer for this one

Which of the following scenarios is NOT an example of a situation resulting in a temporary difference and which, therefore, would NOT result in the debiting or crediting of a deferred income tax account?

A company uses straight-line depreciation for book purchases and ACRS for tax purposes.

Estimated warranty costs are expensed in the year of sale but warranty costs are deducted for tax purposes in the year when repairs are made.

In its financial reports, a company reports interest revenue earned on tax-exempt municipal bonds held as assets.

A company uses the percentage of completion basis for book purposes, but uses the completed contract basis for tax purposes

Answer & Explanation

Correct Answer: In its financial reports, a company reports interest revenue earned on tax-exempt municipal bonds held as assets.

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In a rental property, tenants are considered _______________.

lessors

rent collectors

debtors

lessees

Answer & Explanation

Correct Answer: lessees

Note: This Question is unanswered, help us to find answer for this one

XYZ Company acquires common stock of the ABC Company for the purpose of developing a long-term relationship with ABC, which is a major supplier of the raw material used to manufacture XYZ product. How would XYZ Company report these securities on its Balance Sheet?

At acquisition cost and classified as a current asset in the Marketable Securities account

At acquisition cost and classified as a noncurrent asset in the Investment in Securities account

At market value and classified as a current asset in the Marketable Securities account

At market value and classified as a noncurrent asset in the Investment in Securities account

Answer & Explanation

Correct Answer: At market value and classified as a noncurrent asset in the Investment in Securities account

Note: This Question is unanswered, help us to find answer for this one

Accounting Skills (Securities, Derivatives And Investments) Quick Quiz

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Accounting Skills (Securities, Derivatives And Investments) MCQ

Accounting Skills (Securities, Derivatives And Investments) Quick Quiz

The FASB requires companies to show in income each period the change in the fair value of any derivative that _________________.

A lease must be accounted for as a capital lease if it meets any one of four conditions. Which of the following is NOT one of those conditions?

XYZ Company acquires marketable securities in Year 1 at a cost of $90,000. The securities can be readily converted into cash and XYZ Company intends to do so when it needs cash. How would XYZ Company report this investment on its Year 1 Balance Sheet?

What gives the lessee the right to purchase the asset for a price less than the predicted fair market value of the asset when the option is exercised?

XYZ Company includes in its book income $75,000 of interest on municipal bonds. The company reports a current liability of $270,000 for income tax payable on its Balance Sheet. The tax rate is 30 percent. What net income will XYZ Company report on its Income Statement?

In the _________________, the owner or lessor merely sells the rights to use the property to the lessee for a specified period.

In which of the following situations would the lessee enjoy the economic benefits and bear the economic risks of leasing an asset?

Which of the following scenarios is NOT an example of a situation resulting in a temporary difference and which, therefore, would NOT result in the debiting or crediting of a deferred income tax account?

In a rental property, tenants are considered _______________.

XYZ Company acquires common stock of the ABC Company for the purpose of developing a long-term relationship with ABC, which is a major supplier of the raw material used to manufacture XYZ product. How would XYZ Company report these securities on its Balance Sheet?