Accounting Final Exam

¡Supera tus tareas y exámenes ahora con Quizwiz!

Capital Expenditure

Costs incurred to acquire or improve long-term assets

Capital expenditure

Costs incurred to acquire or improve long-term assets

trading securities

Debt securities are bought and held primarily for sale in the near term to generate income on short-term price differences. Companies report trading securities at fair value at each reporting date, with unrealized holding gains and losses recognized as net income. Interest is recorded when earned.

available-for-sale securities

Debt securities not classified as held-to-maturity or trading securities. Companies report available-for-sale securities at fair value, but do not report changes in fair value as part of net income until after they sell the security. Interest on available-for-sale securities is recorded when earned. Unrealized holding gains and losses on available-for-sale debt securities are recognized as other comprehensive income and as a separate component of stockholders' equity.

Held-to-maturity securities

Debt securities that the company has the positive intent and ability to hold to maturity. Companies report held-to-maturity securities at amortized cost, recognize interest when earned, and do not recognize unrealized holding gains or losses.

Which of the following is NOT a characteristic of PP&E?

Decreases in value over time

Cost allocation of natural resources

Depletion

Cost allocation of PP&E

Depreciation

Journal entry for the loss on impairment

Determine by subtracting the fair value from the book value

a corporation issues bonds with detachable warrants. the amount to be recorded as paid-in capital is preferably

based on the relative market values of the two securities

Which of these is not a depreciation method?

Double-Line method

In accounting for PP&E assets, which of the following outlays made after acquisition should be fully expensed in the period the expenditure is made?

Expenditure made to maintain an existing asset so that it can function in the manner intended

When a plan asset is disposed of, the accounting records should be taken out of the asset account at cost and depreciation cost up to the date of disposal, and any gains or losses are not recognized because the asset is not on the books any longer.

FALSE

Cash or other assets received in an exvchange are referred to as "boot"

False

Debt securities include corporate bonds and convertible debt, but not U.S. government securities

False

Depreciation is based on the decline in the fair market value of an asset.

False

The rules used to account for impairments of limited-life intangible assets are different from the rules used to account for impairments of plant and equiptment

False

The units-of-production approach to depreciation is appropriate when depreciation is a function of time instead of activity.

False

True or False: Deferred payment contracts are recognized using the installment sales method.

False

When assets are acquired in exchange for a company's own stock, the best measure of cost is the historical cost of the stock issued

False

equity securities

Financial securities that represent ownership interests such as common, preferred, or other capital stock. They also includerights to acquire or dispose of ownership interests at an agreed-upon or determinable price, such as in warrants, rights, andcall or put options. The cost of equity securities includes the purchase price of the security plus broker's commissions andother fees incidental to the purchase.

The ___ is the amount by which the carrying amount of the asset exceeds its fair value

Impairment loss

The substitution of better asset for the one currently used.

Improvements (betterments)

Which of the following is NOT a requirement for qualifying assets?

Limited Useful Life

What does MACRS stand for?

Modified Accelerated Cost Recovery System

Charlie Parker, president of Spinners Company, has recently noted that depreciation increases cash provided by operations and therefore depreciation is a good source of funds. Do you agree?

No

Depreciable Base

Original Cost - Salvage Value

Book Value

Origional Cost- Accumulated Depreciation

A deferred payment contract involves delaying the ___ for goods or services until a later date.

Payment

Which of the following costs is typically NOT capitalized as part of property, plant, and equiptment?

Periodic maintenance costs

When recording the issuance of preferred stock, the amount received is credited to which account?

Preferred Stock

Which of the following represents the rights of preferred stockholders?

Preferred stockholders have priority in receiving dividends.

Impairment

Recognition of a decrease in the value of an assets

Restricted-stock plans

Restricted-stock plans transfer shares of stock to employees, subject to an agreement that the shares cannot be sold, transferred, or pledged until vesting occurs.

Dilutive securities

Securities that can be converted to common stock. Upon conversion or exercise by the holder, the dilutive securities reduce(dilute) earnings per share. Companies with dilutive securities report both basic EPS and diluted EPS in their income statements.

treasury stock

Stock repurchased by the company and held in its own treasury.

the conversion of bonds is most commonly recorded by the

book value method

the conversion of preferred stock is most commonly recorded by the

book value method

significant influence

The ability of an investor corporation to affect the operating and financial policies of an investee corporation, withoutpossessing legal control of the investee. Examples include representation on the board of directors, participation in policy-making processes, material intercompany transactions, interchange of managerial personnel, or technological dependency.

Amortized Cost

The acquisition cost of debt securities adjusted for the amortization of discount or premium, if appropriate. Amortized cost is the valuation amount companies use to account for held-to-maturity debt securities.

If an asset is sold at a gain

The book value of the asset is less than the proceeds received from the sale

Book value

The carrying value of an asset on the balance sheet

which of the following is true about accounts payable

both 1 and 3 are true

Grant date

The date at which a company grants stock options to employees. Public companies estimate the options' fair value as of that date, using an option-pricing model and any adjustments needed for unique factors. No adjustments occur after the grant date in response to subsequent changes (up or down) in the stock price.

Basic EPS

The earnings per share for a simple capital structure. A company with a complex capital structure reports both basic EPS and diluted EPS amounts on the face of its income statement.

Fair value

The estimated value of an asset in an arm's length transaction

Profit

The financial gain made in a transaction or business venture after deducting all expenses.

Revenue

The income generated from the sale of goods or services.

Interest

The money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt.

par value

The nominal value per share of capital stock.

time value

The option's value over and above its intrinsic value, reflecting the possibility that the option has a fair value greater than zero.

Capitalization period

The period durning which a company must capitalize interest

Fair Value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Revaluation

The process of adjusting the carrying value of an asset to its fair value

Improvements (betterments)

The substitution of a better asset for the one currently used

Accumulated Depreciation

The total depreciation recognized on an asset since its acquisition

what is the main purpose of recording the issuance of a stock

To provide a record of the company's capital structure and ownership interests.

the payout ratio is calculated by dividing

cash dividends by net income less preferred dividends

total stockholders' equity represents

claims agains a portion of the total assets of a company

total stockholders' equity represents

claims against a portion of the total assets of a company

the residual interest in a corporation belongs to the

common stockholders

Investments in debt securities are generally recorded at

cost including brokerage and other fees.

A controlling interest occurs when one corporation acquires a voting interest of more than 50 percent in another corporation.

True

A special assessment by the municipality for sidewalks and a drainage system would be included in the cost of land

True

Companies always treat gains or losses from an involuntary conversion as comprehensive income

True

Companies report trading securities at fair value, with unrealized holding gains and losses reported in net income.

True

Depreciation is a means of cost allocation, not a mater of valuation.

True

Depreciation, depletion, and amortization all involve the allocation of the cost of a long-lived asset to expense.

True

Double-Declining-balance depreciation and sum-of-years-digit depreciation methods are referred to as accelerated depreciation methods

True

If the fair value of an unlimited life intangible other than goodwill is less than its book value, an impairment loss must be recognized

True

If the value of a patent is impaired because demand drops for the patented produce, is should be written down or written off in the period of the decline in demand.

True

The declining-balance method does not deduct the salvage value in computing the depreciation expense

True

True or False: Lump-sum purchases allocate the total cost among various based on their relative fair market values.

True

True or False: PP&E is initially recorded at cost?

True

intangible assets that result from interactions and relationships with outside parties are customer-related intangible assets

True

the cost of acquiring a customer list from another company is recorded as an intangible asset

True

A measure used in determining the amount of interest that can be capitalized. Computed by weighting construction expenditures by the amount of time that a company can incur interest cost on the expenditure

Weighted-average accumulated expenditures

Before the amount of depreciation charge can be computed, three basic questions must be answered. Which option below is not included in the base questions to ask?

What depreciation method will maximize net profit.

which of the following may be a current liability

all of the answers are correct

Which of the following is not correct concerning trading securities?

all of these choices are correct

compensation expense resulting from a compensatory stock option plan is generally

allocated to the periods benefited by the employee's required service

which of the following is reported as an operating expense

amortization expense

which of the following statements is true regarding an S corporation

an S corporation does not pay income tax

redeemable preferred stock is reported

as a liability

Debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses as other comprehensive income and as a separate component of stockholders' equity are

available-for-sale debt securities

investor

A corporation that acquires an interest in the common stock of another corporation (investee) for investment purposes. The percentage of the investee voting stock that is held by the investor, which determines the amount of influence the investor has over the investee, generally determines the accounting treatment for the investment.

EPS Earnings per Share is

A distilled and important income figure, calculated as net income minus preferred dividends (income available to commonstockholders), divided by the weighted-average common shares outstanding. Companies must disclose earnings per shareon the face of the income statement.

Dividend

A distribution of a portion of a company's earnings to its shareholders.

stock dividend

A dividend that is paid with additional shares of stock rather than in cash.

Weighted-average accumulated expenditures

A measure used in determining the amount of interest that can be capitalized

restricted-stock awards

A plan in which a company transfers stock to the employee at the grant date.

controlling interest

A relationship in which one corporation acquires a voting interest of more than 50% in another corporation. The investor corporation is referred to as the parent and the investee corporation as the subsidiary. Companies present the investment in the common stock of the subsidiary as a long-term investment on the separate financial statements of the parent.

accumulated other comprehensive income

A separate category in stockholders' equity to record gains and losses that bypass the income statement.

Loan

A sum of money that is borrowed and expected to be paid back with interest.

Stock

A type of investment that represents ownership in a company.

Depreciation

Allocation of an asset's cost over its useful life

Amortization

Allocation of the cost of intangible assets over their useful lives

Cost allocation of intangible assets

Amortiation

How is the issuance of common and preferred stock recorded on the balance sheet?

As an increase in both the Common Stock and Preferred Stock accounts.

Under the cost model, how is PP&E initially recorded?

At cost

Which of the following is an example of a tangible asset classified as property, plant, and equiptment?

Buildings and Land

The period of time durning which a company must capitalize interest

Capitalization period

Interest costs durning construction are ____ as part of the cost of long-term assets.

Capitalized

if bonds are issued between interest dates, the entry on the books of the issuing corporation could include a

credit to interest expense

Recoverability Test

determined by comparing the book value to the future cash flow

complex capital structure

exists whenever a company's capital structure includes dilutive securities.

which of the following illustrates the recoverability test

expected future cash flows > carrying value of intangible asset = no impairment

Cost incurred internally to create intangibles are

expensed as incurred

all dividends, expect for liquidating dividends, reduce the total stockholders' equity of a corporation

false

retained earnings represent the amount of profits distributed to the stockholders

false

which of the following is a contract-related intangible asset?

franchise

A company must account for a contract modification as a new contract if the

goods or services are distinct and the company has the right to receive the standalone price.

which of the following is not reported as part of income from continuing operations

goodwill

if bonds are issued at a premium and the effective interest method of amortization is used, interest expense in the earlier years will be

greater than if the straight-line method were used

Debt securities that are accounted for at amortized cost, not fair value, are

held-to-maturity debt securities.

The first step in the process for revenue recognition is to

identify the contract with customers.

The second step in the process for revenue recognition is to

identify the separate performance obligations in the contract.

companies should test indefinite life intangible assets at least annually for

impairment

Which of the following is included in the calculation of weighted average accumulated expenditure?

interest costs

potentially dilutive security

is a security which can be exchanged for or converted into common stock and therefore upon conversion or exercise could dilute (or decrease) earnings per share. Included in this category are convertible securities, options, warrants, and other rights.

A contract

is an agreement that creates enforceable rights and obligations.

Diluted earnings per share

is the amount of earnings for the period available to each share of common stock outstanding and to each share that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the reporting period.

Basic earnings per share

is the amount of earnings for the period available to each share of common stock outstanding during the reporting period.

which of the following is not considered a part of the definition of a liability

its liquidation is reasonable expected to require the use of existing resources classifies as a current assets or create other current liabilities

The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were

less than book value

What is the relationship between current liabilities and a company's operating cycyle

liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if less)

trademarks, newspaper mastheads, and internet domain names are all examples of

marketing-related intangible assets

convertible bonds

may be exchanged for equity securities

liabillities are

obligations arising from past transactions and payable in assets or services in the future

stock warrants outstanding should be classififed as

paid-in capital

"gains" on sales of treasury stock should be credited to

paid-in capital from treasury stock

Which characteristic is not possessed by intangible assets

physical existence

Plant assets purchased in exchange for a zero-interest-bearing note should be accounted for at the

present value of the note

The last step in the process for revenue recognition is to

recognize revenue when each performance obligation is satisfied.

The converged standard on revenue recognition

recognizes and measures revenue based on changes in assets and liabilities.

The issuance for cash of no-par-value common stock at a price in excess of the stated value of the common stock is accounted for as follows except:

retained earnings is debited

one factor that is not considered in determining the useful life of an intangible asset is

salvage value

Equity securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses are

securities where a company has holdings of less than 20%.

the face value of bonds is also called each of the following except

stated value

A plant asset has a cost of $40,000 and a salvage value of $10,000. The asset has a three-year life. If depreciation in the third year amounted to $5,000, which deprection method was used?

sum-of-the-years'-digits

The book value of a plant asset is

the asset's acquisition cost less the total related depreciation recorded to date

How is PP&E allocated over its useful life?

through depreciation

what is the main purpose of the statement of stockholders' equity

to provide information about the changes in the company's equity accounts durning a specific period

A corporation is incorporated in only one state regardless of the number of states in which it operates

true

a corporation is incorporated in only one state regardless of the number of states in which it operates

true

If an industrial firm uses the units-of-production method of computing depreciation on its only plant asset, factory machinery, the credit to accumulated depreciation from period to period durning the life of the firm will

vary with production


Conjuntos de estudio relacionados

Unit 13 vocabulary: World War II

View Set

Ch. 12 AP Microeconomics (The Design of the Tax System)

View Set

Passpoint Questions that are hard, weird, or specific

View Set

Coursera (Practice Quiz: Code Reviews)

View Set

CA LIFE STATE PRACTICE EXAM PT 2(FROM EXAM FX ONLINE TEST)

View Set

Chapter 8: Bureaucracy Definitions

View Set

Chapter 35: The Child with Neuromuscular or Muscular Dysfunction

View Set