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Lopez Plastics CO

Price: $6.99

1. When an investor classifies an investment in common stock as securities available for sale, cash dividends are classified by the investor as:
A. A return of capital.
B. A loss.
C. A deduction from the investment account.
D. Dividend income.
2. When a material gain contingency is probable and the amount of gain can be reasonably estimated, the gain should be:
A. Reported in the income statement and disclosed.
B. Offset against shareholders' equity.
C. Disclosed, but not recognized in the income statement.
D. Neither recognized in the income statement nor disclosed.

3. Which of the following is not a liability?
A. An unused line of credit.
B. Estimated income taxes.
C. Sales tax collected from customers.
D. Advances from customers.

4. Short-term obligations can be reported as long-term liabilities if:
A. The firm has a long-term line of credit.
B. The firm has tentative plans to issue long-term bonds.
C. The firm intends to and has the ability to refinance as long-term.
D. The firm has the ability to refinance on a long-term basis

5. Lopez Plastics CO. ((LPC) issued callable bonds on January 1, 2011. LPC’s account has projected the following amortization schedule from issuance until maturity.

Date Cash interst effective interest decrease in balance outstanding bal
1/1/2011 $207,020
6/30/2011 $7,000 $6,211 789 $206,230
12/31/2011 $7,000 $ 6,187 813 $205,417
6/30/2012 $7,000 $6,163 837 $204,580
12/31/2012 $7,000 $6,137 863 $203,717
6/30/13 $7,000 $6,112 888 $202,829
12/31/13 $7,000 $6,085 915 $201,913
6/30/14 $7,000 $6,057 943 $200,971
12/31/14 $7,000 $6,029 971 $200,000
What is the effective interest rate on the bonds?

a- 3%
b- 3.5%
c- 6%
d- 7%

6. On December 31, 2010, Reagan Inc. signed a lease for some equipment having a 9-year useful life with Silver Leasing Co. The lease payments are made by Reagan annually, beginning at signing date. Title does not transfer to the lessee, so the equipment will be returned to the lessor on December 31, 2016. There is no bargain purchase option, and Reagan guarantees a residual value to the lessor on termination of the lease.
Reagan's lease amortization schedule appears below:

2010 balance 519,115
2010 payments 90,000 decrease balance 90,000 Balance 429,115 
and so on...

In this situation, Reagan:
A. Is the lessee in a sales-type lease.
B. Is the lessee in a capital lease.
C. Is the lessor in a capital lease.
D. Is the lessor in a sales-type lease.

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