ACCT 306 Final

What is a contingency?

An existing situation where uncertainty exists as to possible gain or loss that will be resolved when one or more future events occur or fail to occur.

Which of the following statements is true regarding the receipt of a refundable deposit?

Cash is debited and Refundable Deposit Liability is credited

Which of the following is true of depreciation accounting?

It is not a matter of valuation, It is part of matching revenues and expenses, and It is the process of cost allocation

Which intangible assets are amortized?

Limited Life- Yes Indefinite Life- No

The date on which to measure the compensation element in a stock option granted to a corporate employee ordinarily is the date on which the employee

is granted the option

A contingent liability

is the result of a loss contingency.

Depletion expense

is usually reported as cost of goods sold when the resource is sold.

Treasury shares are shares

issued but not outstanding

Fences and parking lots are reported on the balance sheet as

land improvements

For the composite method, the composite

life is the total depreciable cost divided by the total annual depreciation.

The recoverability test is used to determine any impairment loss on which of the following types of intangible assets?

limited life intangibles

Under current accounting practice, intangible assets are classified as

limited-life or indefinite life

A dividend which is a return to stockholders of a portion of their original investments is a

liquidating dividend

Which of the following disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements?

liquidation preferences

Which of the following characteristics do intangible assets possess?

long-lived

An objective of the statement of cash flows is to

provide information about the operating, investing, and financing activities of an entity during a period.

The term "depreciable base", or "depreciation base", as it is used in accounting, refers to

the total amount to be charged (debited) to expense over an asset's useful life

Usually, companies compute depletion for accounting purposes using a

the units-of-production method

Which of the following does not describe intangible assets?

they are financial instruments

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

In computing the weighted-average number 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

The right granted to all authors, painters, musicians, sculptors, and other artists for their creations and expressions is termed as a

copyright

The cost of land purchased as a building site does not include

costs of improvement with limited lives

The interest rate written in the terms of the bond indenture is known as the

coupon rate, nominal rate, or stated rate

Where is debt callable by the creditor reported on the debtor's financial statements?

current liabilities

The ratio of current assets to current liabilities is called the

current ratio

Which of the following types of intangible assets results from interactions and relationships with outside parties?

customer-related intangible assets

With regard to cash dividends, an entry is not made on the

date of record

The term used for bonds for which the principal is unsecured is

debenture bonds

In calculating diluted earnings per share, dividends on nonconvertible cumulative preferred stock should be

deducted from net income whether declared or not

Dilutive convertible securities must be used in the computation of

diluted earnings per share only

Stockholder's equity is generally classified into two major categories which are

earned capital and contributed capital

The rate of return earned by bondholders is called the

effective rate

The return on total assets measures

efficiency, profitability, and liquidity

The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is the

either the proportional method or the incremental method

Which of the following best describes the accounting for assurance-type warranty costs?

expensed based on an estimate in year of sale

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

franchise

Depreciation is normally computed on the basis of the nearest

full month and to the nearest dollar

When boot is involved in an exchange having commercial substance,

gains or losses are recognized in their entirety

In a business combination, companies record identifiable intangible assets that they can reliably measure. All other intangible assets, too difficult to identify or measure, are recorded as:

goodwill

Asset turnover is a measure of

how efficiently a company uses its assets to generate sales

Which of the following principles best describes the current methods of accounting for research and development costs?

immediate recognition as an expense

Companies should test indefinite life intangible assets at least annually for:

impairment

Times interest earned is computed by dividing

income before income taxes and interest expense by interest expense.

Bonds that pay no interest unless the issuing company is profitable are called

income bonds

All of the following accounts are included in both the current ratio and the acid-test ratio except

inventory

Termination of an asset's service due to theft or fire is referred to as

involuntary conversion

The activity method of depreciation

is a variable charge approach

What does the current ratio reveal about a company?

the company's liquidity

Cash equivalents are

- treasury bills, commercial paper, and money market funds purchased with excess cash - investments with original maturities of three months or less - readily convertible into known amounts of cash

The notes to the financial statements should include information about acquired intangible assets, and aggregate amortization expense for how many succeeding years?

5

The first step in preparing the statement of cash flows requires the use of information included in which comparative financial statements?

Balance sheets

Which of the following items is not included in an employer's payroll tax expense?

Federal income taxes

Which of the following intangible assets should be reported as a separate item on the balance sheet?

Goodwill

Due to the importance of earnings per share information, it is required to be reported by all Public Companies Nonpublic Companies

Public Companies-Yes Nonpublic Companies- No

Which of the following taxes does not represent a common employee payroll deduction?

State unemployment taxes

Unearned revenue results from which of the following situations?

Target sells gift cards

Which of the following is an advantage of a restricted-stock plan?

The stock never becomes completely worthless

How do you determine the acid-test ratio?

The sum of cash, short-term investments and net receivables divided by current liabilities.

In which of the following situations would a cost incurred after an asset's acquisition be capitalized?

The useful life of the asset is increased.

When is a contingent liability recorded?

When the future events are probable to occur and the amount can be reasonably estimated.

"In-substance defeasance" is a term used to refer to an arrangement whereby

a company provides for the future repayment of long-term debt by placing purchased securities in an irrevocable trust

Delta Darlings Salon sells gift cards for its services. Based on experience, the company estimates that 25% of the gift cards will not be redeemed. The entry to record the redemption of a gift card will include

a debit to Unearned Gift Card Revenue and credits to Service Revenue and Gift Card Breakage Revenue

Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as

a footnote

A mortgage note payable is

a promissory note secured by a pledged title to the property

The primary purpose of the statement of cash flows is to provide information

about the cash receipts and cash payments of an entity during a period

Which of the following is not a major characteristic of a plant asset?

acquired for resale

Example of existing legal obligations that require recognition of an Asset Retirement Obligation (ARO) include the following except:

acquisition costs of an oil or gas property

The balance in Common Stock Dividend Distributable should be reported as a(n)

addition to capital stock

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 sets of conditions would give rise to the accrual of a contingency under the current generally accepted accounting principles?

amount of loss is reasonably estimable and the likelihood of occurrence is probable

Premium on bonds payable is

an adjunct account

A project financing arrangement refers to

an arrangement where a company creates a special-purpose entity to perform a special project.

Accrued liabilities are disclosed in financial statements by

appropriately classifying them as regular liabilities in the balance sheet

Which of the following is the proper way to report some gain contingencies?

as a disclosure only

Redeemable preferred stock is reported

as a liability

Intangible assets are reported on the balance sheet

as a separate classification in the assets section

Long-term debt that matures within one year and is to be converted into stock should be reported

as noncurrent and accompanied with a note explaining the method to be used in its liquidation

When computing diluted earnings per share, convertible bonds are

assumed converted only if they are dilutive

Which of the following represents the total number of shares that a corporation may issue under the terms of its charter?

authorized shares

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

A change in estimate should

be handled in current and future periods

Bonds for which the owners' names are not registered with the issuing corporation are called

bearer bonds

The covenants and other terms of the agreement between the issuer of bonds and the lender are outlined in the

bond indenture

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

Common stock is the only class of stock outstanding in Manley Corporation. Total stockholders' equity divided by the number of common shares outstanding is called

book value per share

When a company enters into what is referred to as off-balance-sheet financing, the company

can enhance the quality of the balance sheet and permit credit to be obtained more readily and at a less cost

The payout ratio is calculated by dividing

cash dividends by net income less preferred dividends

The numerator of the acid-test ration consists of

cash, marketable securities, and net receivables

When a plant asset is acquired by the issuance of common stock and the fair value of the plant asset is not clearly determinable, the cost of the plant asset is properly measured by the

market price of the stock

Which of the following costs are capitalized for self-constructed assets?

materials, labor, and overhead directly related to construction only

Convertible bonds

may be exchanged for equity securities

Research and development costs

may result in the development of a patent.

The return on total assets is computed by dividing

net income by average total assets.

The rate of return on common stock equity is calculated by dividing

net income less preferred dividends by average common stockholder's equity

The asset turnover is computed by dividing

net sales by average total assets.

When a note payable is exchanged for property, goods, or services, the stated interest rate is presumed to be fair unless

no interest rate is stated, the stated interest rate is unreasonable, and the stated face amount of the note is materially different from the current cash sales price for similar items or from the current fair value of the note

Liabilities are

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

Each of the following is a physical factor affecting depreciation except

obsolescence

Economic factors that shorten the service life of an asset include

obsolescence

Which of the following is not an acceptable treatment for the representation of current liabilities?

offsetting current liabilities against assets that are to be applied to their liquidation

Cash dividends are paid on the basis of the number of shares

outstanding

What are compensated absences?

paid time off

Stock warrants outstanding should be classified as

paid-in capital-stock warrants.

Stock that has a fixed per-share amount printed on each stock

par value stock

The recoverability test is used to determine whether impairment has occurred on which of the following intangible assets?

patent

Which of the following is a type of technology-related intangible asset?

patent

Which of the following would not be considered a remediation cost?

permit costs to acquire landfill site

Which characteristic is not possessed by limited-life intangible assets?

physical existence

An employee's net pay is determined by gross earnings minus amounts for income tax withholdings and the employee's

portion of FICA taxes and unions due

Which of the following terms is associated with recording a contingent liability?

probable

In a service-type warranty, warranty revenue is

recognized equally over the warranty period

When computing diluted earnings per share, convertible securities are

recognized only if they are dilutive

Which of the following features of preferred stock makes it more like debt rather than equity?

redeemable

Accounting for product warranty costs under an assurance-type warranty

represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale

The cumulative feature of preferred stock

requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.

Which of the following costs incurred internally to create an intangible asset is generally expensed?

research and development costs

Which of the following would not be capitalized as an intangible asset?

research and development expenditures

The rights of common stockholders generally include the right to

share proportionately in any new issues of preferred stock

A general description of the depreciation methods applicable to major classes of depreciable assets

should be included in corporate financial statements or notes thereto

Under what condition is an employer required to accrue a liability for sick pay?

sick pay benefits vest

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

stated value

In which of the following transactions is retained earnings capitalized?

stock dividend

Which type of dividends do not reduce stockholder's equity?

stock dividends

Which of the following methods of amortization is normally used for intangible assets if a pattern of use cannot be determined?

straight-line

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

sweetener

Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues?

systematic and rational allocation

Corporations issue convertible debt for two main reasons. One is the desire to raise equity capital that, assuming conversion, will arise when the original debt is converted. The other is

that many corporations can obtain debt financing at lower rates

When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to

that portion of total interest cost that would not have been incurred if expenditures for the asset construction had not been made

A loss contingency should be accrued when

the amount of the loss can be reasonably estimated and it is probable that an asset has been impaired or a liability has been incurred

The period of time during which interest must be capitalized ends when

the asset is substantially complete and ready for its intended use

The book value of a plant asset is

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

The purpose of the times interest earned ratio is to indicate

the company's ability to meet interest payments as they come due

The total interest recorded on a zero-interest-bearing note is equal to

the difference between the maturity value of the note and the cash proceeds received

In a corporate form of business organization, legal capital is best defined as

the par value of all capital stock issued

When a patent is amortized, the credit is usually made to

the patents account

Plant assets purchased on long-term credit contracts should be accounted for at

the present value of the future payments

In accounting for oil and gas reserves, larger international companies tend to use

the successful-efforts concept

The debt to assets ratio is computed by dividing

total liabilities by total assets.

Which of these is not part of the historical cost of an asset?

training costs