Question

Secured bonds are:

Question 35 options:

	A) also called mortgage bonds.
	B) also called serial bonds.
	C) bonds that give the bondholder the right to take specified assets of the issuer in the event the issuer fails to pay interest or principal.
	D) also called mortgage bonds and bonds that give the bondholder the right to take specified assets of the issuer in the event the issuer fails to pay interest or principal.

If, as part of the accounting for a lease, the lessee debits an asset and credits a liability, then the lease must be a(n):

Question 37 options:

	A) finance lease.
	B) operating lease less than one year.
	C) operating lease greater than one year.
	D) finance lease and operating lease greater than one year.

When an intangible asset is amortized:

Question 40 options:

	A) stockholders' equity decreases.
	B) net income decreases.
	C) net assets decrease.
	D) All of these are correct.

Corrao Foods Corporation has 6000 shares of 6%, $30 par value, cumulative preferred stock and 150,000 shares of $1 par value common stock outstanding at December 31, 2019 and December 31, 2020. In 2019, a $1000 dividend was declared and paid. In 2020, $33,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2020 (assuming no dividends in arrears prior to 2019)?

Question 43 options:

	A) $20,600
	B) $10,800
	C) $33,000
	D) $21,600

Answer 1

Answers:

1. Option D : Also called mortgage bonds and bonds that give the bondholder the right to take specified assets of the issuer in the event the issuer fails to pay interest or principal.

2. Option A : Finance Lease

3. Option D : All of these are correct

4. Option A: $20,600

Explanations:

1.

Secured bonds are those bonds that give the bondholder the right to take specific asset and receive the amount of debt from the asset, in the event of failure of the issuer to pay interest or principal. They are also called Mortgage Bonds.

2.

In a Finance Lease, for accounting purpose, the lessee debits an assets and credit a liability i.e., he records the asset along with the creation of liability.

3.

When an intangible asset is amortized,

> Net income decreases as amortization is an expense.

> Net assets decreases as their value is being written off by amortization.

> Stockholder's equity decreases, as the expenses ( including amortization) has a negative impact of the same.

Therefore, all the options are correct.

4.

Value of 6% Cumulative Preferred Stock = 6,000 shares * $30 = $180,000

Annual Dividend to be paid to preferred stockholders = $180,000 * 6% = $10,800

Arrears of dividend in 2019 =

Annual dividend to be paid (-) Dividend actually paid

= $10,800 (-) $1000

= $9,800

Dividend received by preferred stockholders in 2020

= Arrears of Dividend for 2019 + Actual Dividend for 2020

= $9,800 + $10,800

= $20,600