ACC302- Conceptual

Lamb Corp. has taxable income of $240,000 and depreciation expense for tax purposes of $50,000 greater than financial reporting purposes. Lamb has a tax rate of 30%, and no other differences exist. Which of the following entires should Lamb make for deferred taxes?

$15,000 deferred tax liability ($50,000 x 30%)

For a contract that contains multiple performance obligations, revenue is allocated to each performance obligation by

Calculating the proportion of the total stand-alone price represented by each performance obligation and multiplying the proportion by the total transaction price to allocate the transaction price to the separate performance obligations.

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

Municipal bonds

Companies can use the expected value to estimate variable consideration when

a company has a large number of contracts with similar characteristics.

Kahle Corporation purchased a 5% interest in stock of Granger Company as part of its available-for-sale securities portfolio. Concerning this investment, Kahle will report

a current asset on its balance sheet, and dividend revenue and unrealized holding gain and losses on its income statement.

KFG Corporation purchases a 2% interest in the stock of Granger Companies part of its trading 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.

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.

For a good or service to be considered distinct and identified as a separate performance obligation, it must be

able to be used by the customer on its own or with resources readily available to the customer and able to be separately identified from other promises in the contract.

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

accrued interest is credited to Interest Revenue.

Held-to-maturity securities are reported at their:

amortized cost.

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 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.

The conversion of preferred stock is most commonly record 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.

Under the equity method, the investment account is decreased by all of the following except the investor's proportionate share of:

decline in the fair value of the investment.

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

decrease and increase

The third step in the process for revenue recognition is to

determine the transaction price.

Taxable income of a corporation

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

Dilutive convertible securities must be used in the computation of

diluted earnings per share only.

The seller of a good or service should recognize revenue when

each performance obligation is satisfied.

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.

The equity method of accounting for an investment in the common stock of another company should be used when the investment

enables the investor to exercise significant influence over the investee.

A temporary difference that would result in a deferred tax liability is

excess of tax depreciation over financial accounting depreciation.

A deferred tax asset represents a

future tax benefit

A correct valuation for debt securities is

held-to-maturity at amortized cost.

The Billings on Construction in Process account is reported:

in either the current asset or current liability section.

A deferred tax liability represents the:

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

A deferred taxability 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.

Deferred tax expense is the

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

Unrealized gains and losses on held-to-maturity securities are:

not recognized because these securities are reported at their amortized cost.

When goods are cosigned, the cosignee

only recognizes revenue associated with commissions.

Income tax expense is computed as income tax payable:

plus or minus the change in deferred income taxes.

Cost estimates on a long-term contract may indicate that a loss will result upon completion of the entire contract. In this 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.

When using the percentage-of-completion method, the company

recognizes revenues and gross profit each period during the contract.

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 March1. 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.

In a consignment sale, the cosignee

records a payable when cosigned merchandise is sold.

Unrealized gains and losses on available-for-sale securities are:

reported on the balance sheet.

Taxable amounts are temporary differences that:

require the recording of a deferred tax liability.

Equity securities are 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%.

Antidilutive securities

should be ignored in all earnings per share calculations.

The treasury stock method of computing incremental shares applies to:

stock options and warrants

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

subscriptions received in advance.

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

sweetener.

Income tax payable is based (computed) on:

taxable income.

The most popular input measure used to determine progress toward completion of a performance obligation over a period of time is

the cost-to-cost basis.

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 be estimated total gross profit from the contract, multiplied by the percentage of the costs incurred during the year to the

total estimated cost.

Machiner 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- Yes

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?

II. A revenue is deferred for tax purposes but not for financial reporting purposes. III. AN expense is deferred for financial reporting purposes but not for tax purposes.

Allocating a transaction price to multiple performance obligations include which of the following steps:

Identify distinct goods and/or services as separate performance obligations.

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

Net income

Under the percentage-of-completion method, how should the balances of Billings on Construction in process and Construction in Process be reported prior to the completion of a long-term contract?

Net, as a current asset if a debit balance, and as a current liability if a credit balance.

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

Product warranty liabilities

Hulio Company has a credit balance in the FairValue Adjustment account that is associated with its Available-for-Sale 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 Available-for-Sale 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 Trading 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 Trading Equity Securities account to report the securities at a fair value on the balance sheet.

Charlie Company modified an existing contract with a buyer to add on additional goods. The original goods and the additional goods may be used independently and are considered distinct. Charlie intends to modify the existing contract in a manner that will result in a new separate contract. How should Charlie price the additional goods to ensure that a new separate contract is created?

The consideration for the additional goods should reflect appropriate standalone prices.

Quarry Company enters into a contract with Eclipse Manufacturing to purchase a large piece of machinery. The contract includes both the machine and installation for a single total contract sales price. Quarry does not hav the specialized expertise to install the machine, and Eclipse commonly includes installation as apart of the single contract price it quotes its customers. How should Eclipse allocate the contract price to the performance obligations?

The entire sales price for the contract should be allocated to a single performance obligation.

When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies?

The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee.

Chelsea sells equipment to a customer. The total selling price includes installation and training services. Companies other than Chelsea also provide installation and training services, but the customer has chosen to have Chelsea perform these tasks. What is (are) Chelsea's performance obligation(s)?

Three separate performance obligations: the sale of the equipment, the sale of its installation and the sale of training services.

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 billings exceed the accumulated costs, the amount of the estimated loss is reported as a current liability.

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

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

antidilutive securities

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.

When computing diluted earnings per share, convertible bonds are

assumed converted only if they are dilutive.

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.

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.

The transaction price

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