5. A discount on notes payable is charged to interest expense*

Equally over the life of the note

Only in the year the note is issued

Using the effective interest method

Only in the year the note matures

13. Under the effective interest method, as a discount is amortized each period, the*

Interest expense recorded increases

Amortization amount decreases

Carrying value decreases

Interest paid on bondholders increases

7. S1: An onerous contract is one in which the unavoidable costs of satisfying the obligations outweigh the economic benefits to be received. S2: Constructive obligations, in which the company has created a valid expectation on the part of other parties that it will discharge certain responsibilities, are disclosed in the notes to financial statements.*

Only statement 2 is correct

Only statement 1 is corrrect

Both statements are correct

Both statements are incorrect

2. Which of the following best describes the accrual method of accounting for warranty costs?*

Expensed when warranty claims are certain

Expensed based on estimate in year of sale

Expensed when incurred

Expensed when paid

4. If the bonds were issued at a premium, this indicates that*

No necessary relationship exists between the two rates

The nominal rate of interest exceeded the market rate

The market rate of interest exceeded the stated rate

The market and nominal rates coincided

15. A department store received cash and issued a gift certificate that is redeemable in merchandise. When the gift certificate was issued:*

Revenue account should be decreased.

Deferred revenue account should be decreased.

Deferred revenue account should be increased.

Revenue account should be increased.

10. Which obligation are classified as current even if they are due to be settled after more than twelve months from balance sheet date?*

Notes payable - non-trade

Bank overdrafts

Trade payables and accruals from operations

Dividends payable