D104 Intermediate Accounting II - Set 2 - Part 2

Correct Answer: Debit unearned gift card revenue, credit sales revenue

When a customer redeems a gift card, the unearned revenue is recognized as sales revenue by debiting unearned gift card revenue and crediting sales revenue.

Correct Answer: The ability of a company to meet its interest obligations

The times interest earned ratio indicates how many times a company can cover its interest expenses with its earnings before interest and taxes.

Correct Answer: When the liability is probable and can be reasonably estimated

Contingent liabilities are recognized when it is probable that a loss will occur and the amount of the loss can be reasonably estimated.

Correct Answer: Debit retained earnings, credit common stock and paid-in capital

A small stock dividend is recorded by debiting retained earnings and crediting common stock and paid-in capital in excess of par for the value of the shares distributed.

Correct Answer: Decreases par value

A stock split increases the number of shares outstanding and decreases the par value per share without affecting total stockholders' equity.

Correct Answer: A and B

The depletion base includes the acquisition cost, exploration costs, intangible development costs, and restoration costs associated with extracting natural resources.

Correct Answer: Debit depletion expense, credit accumulated depletion

Depletion is recorded by debiting depletion expense and crediting accumulated depletion for the amount of the resource extracted.

Correct Answer: Net income / average total assets

Return on assets measures how effectively a company uses its assets to generate profit, calculated by dividing net income by average total assets.

Correct Answer: Convertible bonds

Convertible bonds are considered dilutive securities because they can be converted into common stock, potentially reducing earnings per share.

Correct Answer: Convertible preferred stock

Convertible preferred stock gives the holder the right to convert their preferred shares into common stock, usually at a predetermined ratio.

Correct Answer: Debit bonds payable, credit cash and premium on bonds payable

When bonds are retired at a premium, the bonds payable and premium on bonds payable are debited, and cash is credited for the amount paid.

Correct Answer: Callable bonds

Callable bonds give the issuer the right to redeem the bonds before their maturity date, usually at a specified price.

Correct Answer: Zero-coupon bonds

Zero-coupon bonds do not pay periodic interest; instead, they are issued at a discount and pay the full face value at maturity.

Correct Answer: Recorded when realized

Contingent gains are only recorded when they are realized, unlike contingent liabilities, which are accrued if probable and estimable.

Correct Answer: Added to the cost of land

Demolition costs incurred to prepare land for use are added to the lands acquisition cost, rather than expensed or amortized.

Correct Answer: Book value decreases

When an asset is impaired, its book value is written down to its recoverable amount, resulting in a decrease in the book value.

Correct Answer: Goodwill is included in the acquisition price

When a company is sold, the purchase price includes goodwill, which represents the excess of the purchase price over the fair value of identifiable net assets.

Correct Answer: Sum-of-the-years-digits method

The sum-of-the-years-digits method is an accelerated depreciation method that allocates higher depreciation in the early years and lower expenses in the later years.

Correct Answer: Debit amortization expense, credit accumulated amortization

Amortization expense is recognized by debiting amortization expense and crediting accumulated amortization, similar to depreciation for tangible assets.

Correct Answer: Debit bonds payable, debit loss on bond redemption, credit cash

When bonds are repaid at a price above their carrying amount, a loss is recognized, and the entry debits bonds payable and the loss on bond redemption, while cash is credited.