Question

QUESTION 1

When the interest payments dates of a bond are May 1 and November 1, and the bond is issued on June 1, the amount of interest expense at December 31 of the year of issuance would be for

a.	two months
b.	six months
c.	seven months
d.	eight months

QUESTION 2

The term 'intangible assets' is used in accounting to denote

a.	current or noncurrent property items without physical characteristics
b.	assets with lesser economic significance because of the nature of such assets
c.	properties without physical characteristics that have long-term effects on a business enterprise
d.	such items as patents, copyrights, and claims against customers which can be valued on a monetary basis

QUESTION 3

A method that ignores salvage value in the early years of the asset's life in calculating periodic depreciation expense is the

a.	productive-output method
b.	group composite method
c.	sum-of-the years'-digits method
d.	double-declining-balance method

QUESTION 4

The entry

Accounts Receivable                                     xxx

Allowance for Uncollectible Accounts                                     xxx

would be made when

a.	a customer pays its account balance
b.	a customer defaults on its account
c.	a previously defaulted customer pays its outstanding balance
d.	estimated uncollectible receivables are too low

Answer 1

Question 1 :

Answer : Option C : 7 months

Explanation : Since bonds are issued on June 1st and year ends on December 31st interest expense is calculated for 7 months i.e., June 1st to December 31st.

Reasons for other options incorrect :

Option A : Interest is calculated from Nov to December it is incorrect, it has to be calculated for 7 months.

Option B : Interest is calculated from July to December it is incorrect , it has to be calculated for 7 months.

Option D : Date of issue of bonds is June and interest is being calculated from May 1st it would be incorrect to calculate from May 1st,it has to be calculated from June 1st.