QUESTION: 2133

The interest expense on a discount bond _______ over time.

decreases
remains constant
can increase or decrease, depending on interest rate movements
increases

Answer(s): D

Explanation:

Remember that the book value of the liability of any straight bond equals the face value at maturity. Hence, when the bond is issued at a discount, the discount amount is amortized over the life of the bond. The outstanding liability thus increases steadily toward the face value. The increasing liability increases the interest expense over time.

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QUESTION: 2134

A firm has to pay 1,000 to its suppliers in one year. The interest rate on this liability is 9%. The current liability recorded by the firm is ________.

1,090
90
1,000
917

Answer(s): C

Explanation:

Current liabilities, in general, are recorded at the principal portion of the payment. Hence, even though the firm in this case will have to pay 1,090 in 1 year, the current liability equals the principal portion = 1,000.

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QUESTION: 2135

What is the purpose of information presented in notes to the financial statements?

To provide disclosures required by generally accepted accounting principles.
To present management's responses to auditor comments.
To provide recognition of amounts not included in the totals of the financial statements.
To correct improper presentation in the financial statements.
None of these answers.

Answer(s): A

Explanation:

Users of the financial information are the focus of financial reporting. GAAP requires disclosures in the notes to facilitate the users' understanding of the financial statements.

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QUESTION: 2136

In a common size statement, a firm shows average receivables of 9.3%. Its receivables turnover equals 1.23.

What's the average receivables collection period?

296.8 days
insufficient information
321.6 days
184.3 days

Answer(s): A

Explanation:

Average receivables collection period = 365/receivables turnover. In this case, the collection period = 365/1.23 = 296.8 days.

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Free CFA-Level-I Exam Braindumps (page: 534)

QUESTION: 2133

Explanation:

QUESTION: 2134

Explanation:

QUESTION: 2135

Explanation:

QUESTION: 2136

Explanation: