ACC302 Exam 2 Study Set

Companies can use the expected value to estimate variable consideration when

A company has a large number of contracts with similar characteristics

Company has a 180-day warranty for product defects. It also sells an extended warranty which provides an extra two years of protection. On May 10, it sold a product for 5600 and extended warranty for another 2500. Journal entry should be...

A credit to sales revenue of 5600 and a credit to unearned warranty revenue of 2500.

KFG Corporation purchased 2% interest in the stock of Granger Company as part of its equity securities portfolio. Concerning this investment, KFG will report

A current asset on its balance sheet, and dividend revenue and unrealized holding gains and losses on its income statement

Kahle corporation purchased a 5% interest in the stock of Granger Company as part of its equity securities portfolio. Concerning this investment, Kahle will report

A current asset on its balance sheet, and dividend revenue and unrealized holding gains and losses on its income statement

Assuming a 40% statutory tax rate applies to all years involved, which of the following situations will give rise to reporting a deferred tax liability on the balance sheet?

A revenue is deferred for tax purposes but not for financial reporting purposes; an expense is deferred for financial reporting purposes but not for tax purposes

Use of the effective-interest method to amortize bond premiums and discounts results in

A varying amount being recorded as interest income from period to period.

When investments in debt securities are sold between interest payment dates, preferably the

Accrued Interest is credited to interest revenue

Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income?

An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes

In computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the

Annual Preferred Dividend

In computing earnings per share, the equivalent number of shares of convertible preferred stock are added as an adjustment to the denominator (number of shares outstanding). If the preferred stock is cumulative, which amount should be added as an adjustment to the numerator (net earnings)?

Annual Preferred Dividend

In accounting for investments in debt securities

Any discount or premium is amortized

The role of the agent in a Principal-Agent relationship is to

Arrange for the principal to provide goods or services to a customer

The conversion of preferred stock is most commonly recorded by the

Book Value Method

Deferred tax expense is the

Change in the deferred tax liability balance from the beginning to the end of the accounting period.

The company sells a product with a warranty for the first 90 days and optional extended coverage for an additional two years. The total transaction price with extended I 3140, and standalone is 2130 and 1010 respectively. The estimated cost of the warranty is 380. The accounting for warranty will include a

Credit to unearned warranty revenue, $1010.

The third step in the process for revenue recognition is to

Determine the transaction price

Dilutive convertible securities must be used in the computation of

Diluted Earnings per share only

A convertible bond should be included in the diluted earnings per share computation as if the bonds had been converted into common stock if the effect of its inclusion is

Dilutive - YES; Antidilutive - NO

Which of the following differences would result in future taxable amounts?

Expenses or losses that are tax deductible before they are recognized in financial income

Machinery was acquired at the beginning of the year. Depreciation recorded during the life of the machinery could result in

Future taxable amounts: YES; Future Deductible Amounts

A correct valuation for debt securities is

Held-to-maturity at amortized cost

A deferred tax liability represents the:

Increase in taxes payable in future years as a result of taxable temporary differences

The transaction price

Is the amount of consideration that a company expects to receive from a customer

Which of the following securities could be classified as held-to-maturity?

Municipal Bonds

What is the numerator of the diluted EPS calculation when convertible preferred stock is included?

Net Income

Income tax expense is computed as income tax payable:

Plus or minus the change in deferred income taxes.

Which of the following are temporary differences that are normally classified as expense or losses and are deductible after they are recognized in financial income?

Product warranty liabilities

On January 15, 2024, Bella Vista Company enters into a contract to build custom equipment for ABC Carpet Company. The contract specified a delivery date of March 1. The equipment was NOT delivered until March 31. The contract required full payment of $75,000, 30 days after delivery. The revenue for this contract should be

Recorded on March 31, 2024

The treasury stock method of computing incremental shares applies to:

Stock options and warrants

All of the following are examples of temporary differences that result in taxable amounts in future years except:

Subscriptions received in advance.

When additional consideration is offered to convertible bondholders to encourage conversion, payment is called a

Sweetner

Income tax payable is based (computed on:

Taxable income

Hulio Company has a credit balance in the Fair Value Adjustment account that is associated with its Equity Securities portfolio at December 31, 2025. Which of the following statements is true regarding Hulio's 2025 financial statements?

The account balance will be reported as a deduction from the Equity Securities account to report the securities at fair value on the balance sheet.

Hampton Company has a debit balance in the Fair Value Adjustment account that is associated with its Equity Securities portfolio at December 31, 2025. Which of the following statements is true regarding Hampton's 2025 financial statements?

The account balance will be reported as an addition to the Equity Securities account to report the securities at fair value on the balance sheet.

If a contract involves a significant financing component

The time value of money is used to determine the fair value of the transaction.

In accounting for a long-term construction-type contract using the percentage-of-completion method, the gross profit recognized during the first year would during the first year would be estimated total gross profit from the contract, multiplied by the percentage of the costs incurred during the year to the

Total estimated cost

Cost estimates at the end of the second year indicate that a loss will result upon the completion of the entire contract. Which of the following statements is correct?

Under the cost-recovery method, when the Construction in Process balance exceeds the billings, the estimated loss is reported as a current liability.

The diluted EPS computation considers all of the following except the impact of:

antidilutive securities

In the diluted earnings per share computation, the treasury stock method is used for options and warrants to reflect assumed reacquisition of common stock at the average market price during the period. If the exercise price of the options or warrants exceeds the average market price, the computation would

be antidilutive

The conversion of bonds is most commonly recorded by the

book value method.

In computing the weighted average of shares outstanding, when a stock dividend or stock split occurs during the period, the additional shares are

considered outstanding at the beginning of the earliest year reported

What effect will the acquisition of treasury stock have on total stockholders' equity and on earnings per share, respectively?

decrease and increase

Taxable income of a corporation

differs from accounting income because companies use the full accrual method for financial reporting but the modified cash basis for tax reporting

When multiple performance obligations exist in a contract, they should be accounted for as a single performance obligation when

each service is interdependent and interrelated

A deferred tax asset represents a

future tax benefit

A deferred tax liability represents the

increase in taxes payable in future years as a result of taxable temporary differences.

A deferred tax asset represents the:

increase in taxes saved in future years as a result of deductible temporary differences

The deferred tax expense is the

increase in the balance of the deferred tax liability minus the increase in the balance of the deferred tax asset

A contract between Boeing and Delta in which Boeing supplies planes to Delta

is an agreement that creates enforceable rights and obligations for both parties

Cost estimates on a long-term contract may indicate that a loss will result upon the completion of the entire contract. In case, the entire expected loss should be

recognized in the current period, regardless of whether the percentage-of-completion or cost-recovery method is employed.

Taxable amounts are temporary differences that:

require the recording of a deferred tax liability.

Antidilutive securities

should be ignored in all earnings per share calculations

Company will receive $8300000 if the new FDA drug gets approved, which is a 90% likelihood. Transaction price of this arrangement is

$8300000

Company sold equipment to James Landscaping Service in exchange for a zero-interest bearing note with a face value of $102000, with a payment due in 12 months. The fair value of the equipment on the day of sale was $94800. The amount of revenue to be recognized on this transaction in 2024 is

$94800 sales reveunue and $4200 interest revenue.