Exam 2 True or False
Accounting for a long-lived asset whose carrying value exceeds its expected future economic benefits is guided by the concept of verifiability.
False
Because the securitization entity's credit rating is based on the quality of the transferred receivables, it will generally be the same as the rating of the transferor's general debt.
False
Cost of goods available for sale is always the same regardless of the inventory cost flow assumption in use.
False
During periods of rising inventory costs, LIFO cost of goods sold is understated because of the inventory holding gains that have occurred during the period.
False
Firms are required to disclose total R&D expense recognized in pretax income; thus, analysts can use these disclosures to reconstruct what asset and amortization amounts would be if GAAP allowed R&D to be capitalized. Disclosures of marketing and advertising expenditures are also required and thus permit a similar adjustment approach for trademarks and brands.
False
For ratio analysis, a distortion in the current ratio under LIFO inventory costing may be adjusted by subtracting the LIFO reserve from current assets.
False
GAAP requires that all exchange transactions be recorded at the fair value of the exchanged assets. Thus, except in the rare case that the book value and the fair value of exchanged assets are identical, gains (or losses) on exchanges should be expected to be recognized.
False
GAAP requires the cost flow assumption to correspond to the actual physical flow of inventory.
False
Generally accepted accounting principles do not allow variable costing to be used in external financial statements because absorption costing makes it easier for financial statement users to interpret year-to-year changes in reported net income.
False
IFRS only permits the use of either the FIFO or weighted average cost flow assumption.
False
In a transaction where the transferor surrenders control over its receivables, the transaction is treated as a collateralized borrowing and any gain or loss is recognized in earnings.
False
Interest must be imputed whenever the stated rate is higher than the prevailing borrowing rates at the time of the transaction.
False
Most companies establish credit policies by weighing the expected cost of credit sales against the benefit of increased interest income.
False
Under IFRS, firms are required to report short-term receivables at fair value and to disclose their net realizable value in the notes to the financial statements.
False
Under the sales revenue approach to estimating uncollectible accounts receivable, a loss percentage is applied to gross accounts receivable.
False
When a firm disposes of a long-lived asset before the end of its useful life, the difference between the net book value of the asset and the sale proceeds is a gain or loss from a discontinued item.
False
When companies following IFRS write up an asset to its current fair value, subsequent depreciation of the asset should still be based on the original cost of the asset.
False
A company's independent auditor is required to perform very detailed and stringent procedures for accounts receivable.
True
A restructuring of debt constitutes a troubled debt restructuring if the creditor, for legal or economic reasons related to the debtor's financial difficulties, grants a concession to the debtor that it would otherwise not consider.
True
A securitization entity is a trust or corporation that is legally distinct from the transferor and is created solely to execute securitization transactions.
True
Absorption costing makes it difficult for financial statement users to interpret year-to-year changes in cost of goods sold when production levels significantly change between one year and the next.
True
Accretion expense classified as an operating item, reflects the current period's growth in an asset retirement obligation.
True
All inventory items to which the firm has legal title should be included in the inventory account although most firms record inventory only when they physically receive it.
True
An increase in receivables growth exceeding sales growth could indicate aggressive revenue recognition policies.
True
Because of interest capitalization, an increase in capital expenditures can temporarily decrease the amount of interest expense shown on the income statement.
True
Current cost is an example of the economic sacrifice approach for valuing long-lived assets.
True
Depreciation is the apportionment of the cost of a long-lived tangible asset to the future periods in which it provides benefits.
True
Dollar-value LIFO avoids much of the detailed recordkeeping required under standard LIFO.
True
For international financial reporting, the accounting standard IAS 2 permits the use of either the FIFO or weighted average cost flow assumption, but prohibits the use of LIFO.
True
For long-term credit sales transactions utilizing notes receivable, interest income is recorded each period over the note's term to maturity using the prevailing borrowing rate.
True
For purposes of impairment tests, the fair value of an asset is defined by U.S. GAAP as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date.
True
Gains and losses from sales of assets comprising a clearly distinguishable component of an entity are shown in the discontinued operations section of the income statement.
True
IFRS requires that research be expensed but does permit capitalization of some development expenditures.
True
In practice, estimated sales returns and allowances are seldom material in relation to accounts receivable so, consequently, no end-of-period accrual is typically made for these items.
True
In the Old-LCM approach to valuing inventory, the ceiling is the inventory's net realizable value.
True
MACRS, a method of accelerated depreciation, is almost universally used for tax purposes in the U.S.
True
The balance sheet carrying value for internally generated intangibles is often below the value of the property rights.
True
The direct write-off method is used only for tax reporting purposes.
True
The method of measuring long-lived assets at their estimated value in an output market is the expected benefit approach.
True
U. S. tax rules specify that if LIFO is used for tax purposes, the external financial statements must also use LIFO.
True
Under IFRS, firms may elect the fair value option only in cases where it eliminates an accounting mismatch or when a group of assets is managed and evaluated using fair values.
True
Under U.S. GAAP, firms have the option to record accounts and notes receivable at fair value.
True
Under a periodic inventory system, cost of goods sold automatically includes the cost of inventory shrinkage
True
When a LIFO firm liquidates old LIFO layers, the net income number under LIFO can be seriously distorted because the older costs in the LIFO layers that are liquidated are matched against sales dollars that are stated at higher current prices.
True
When using LIFO, management occasionally deliberately stops normal purchases for the last few weeks of the year in an attempt to boost profits.
True
