acct ch 16-20
t/f: a contract is an agreement between two parties that creates enforceable rights or obligations
true
**koch and knell is a full service tech comp. they provide equip, installation services as well as training. customers can purchase any product or service separately or as a bundled package. container corp purchased computer equip, installation and training for a total cost of $250k on march 15, 2023. est standalone fair values of the equip, installation, and training are $190k, 60k, and 30k respectively. the transaction price allocated to equip, installation, and training is
169,643, 53,571, and 26,786 respectively 190k + 60k + 30k = 280k (190k / 280k) x 250k = 169,643 (60 k / 280k) x 250k = 53,571 (30k / 280k) x 250k = 26,786
on jan 1, 2021, carla vista company sold goods to martinez company for $402200 in exchange for a 4 year, zero interest bearing note with a face amount of $632868 (imputed rate of 12%). the goods have an inventory cost on carla vista's books of $240000. what amount of interest revenue should carla vista recognize in 2021?
48,264 402,200 x .12 = 48,264
at the end of the first year of a $9,011,000 contract, crane corp provides the following info: cost to date 3,036,000 est cost to complete 7,042,000 progress billings during the year 1,822,000 cash collected during the year 1,510,000 in the first year, crane should recognize profit (loss) of a) $(1,067,000) under either the percentage of completion method or the completed contract method b) $(320,100) under the percentage of completion method and $0 under the cost recovery method c) $0 under ei
a) $(1,067,000) under either the percentage of completion method or the completed contract method
**pharoah corp purchased 27,000 shares of common stock of the sherman corp for $32 per share on jan 2, 2020. sherman corp had 100,000 shares of common stock outstanding during 2021, paid cash dividends of $142,000 during 2021, and reported net income of $420,000 for 2021. pharoah corp should report revenue from investment for 2021 in the amount of a) $113,400 b) $124,740 c) $38,340 d) $75,060
a) 113,400 420,000 x (27,000 / 100,000) = 113,400
Pharoah Corporation purchased 27,000 shares of common stock of the Sherman Corporation for $32 pershare on January 2, 2020. Sherman Corporation had 100,000 shares of common stock outstanding during 2021, paid cash dividends of $142,000 during 2021, and reported net income of $420,000 for 2021. Pharoah Corporation should report revenue from investment for 2021 in the amount of A. $113,400. B. $124,740. C. $38,340. D. $75,060.
a) 113,400 420,000 x (27,000 / 100,000) = 113,400
** blossom corp began operations in 2021. an analysis of blossom's debt securities portfolio acquired in 2021 shows the following totals at dec 31, 2021 for trading and available for sale debt securities: trading available for sale aggregate cost 190k 230k aggregate fair value. 174k 205k what amount should blossom report in its 2021 income statement for unrealized holding loss? a) 16,000 b) 9,000 c) 31,000 d) 41,000
a) 16,000 190k - 174k = 16k
pharoah corp's 2021 income statement showed pretax acct income of $2052000. to compute the federal income tax liability, the following 2021 data are provided: income from exempt municipal bonds $121000 depreciation deducted for tax purposes in excess of depreciation deducted for financial statement purposes 155000 est fed income tax pmts made 363000 enacted corp income tax rate 30% what amt of current fed income tax liability should be included in pharoah's dec 31, 2021 balance sheet? a) 169800 b) 252600 c) 216300 d) 242400
a) 169800 pretax fi 2052000 - income exempt from municipal bonds 121000 - deprec adj 155000 = 1776000 x 30% tax rate = 532800 - tax pmts made 363000 = 169800
the following info relates to ivanhoe comp for 2022: realized gain on sale of available for sale securities 48,100 unrealized holding gains arising during the period on available for sale securities 106,200 reclassification adjustment for gains included in net income 34,500 the amounts to add or subtract from ivanhoe's 2022 net income to determine comprehensive income are a) 71,700 b) 119,800 c) 154,300 d) 188.800
a) 71,700 unrealized holding gains - reclassification adj for gains = 106200 - 34500 = 71700
during 2022, sheridan comp purchased 18700 shares of splish corp common stock for $420750 as a passive interest investment. the fair value of these answers was $410465 at dec 31, 2022. sheridan sold all of the splish stock for $27.25 per share on july 3, 2023, incurring $15330 in brokerage commissions. sheridan comp should report a realized gain on the sale of stock in 2023 of a) 73,495 b) 83,780 c) 88,825 d) 99,110
a) 73,495 18700 shares x $27.25 = $509,575 - $15,330 = 494,245 - 420,750 = $73,495
the standard, revenue from contracts with customers, a) adopts an asset-liability approach for revenue recognition b) adopts a revenue-gain approach for revenue recognition c) adopts "earned and realized" criteria d) adopts criteria that de-emphasize the importance of contracts with customers
a) adopts an asset-liability approach for revenue recognition
unrealized holding gains or losses are recognized as other comprehensive income for a) available for sale securities b) held to maturity securities c) long term securities d) trading securities
a) available for sale securities
**what method does a company use to determine the transaction price for a contract that includes variable consideration when the comp has numerous other contracts w similar characteristics and there are more than 2 possible results? a) expected value method b) most likely value method c) expected outcome method d) most likely amount method
a) expected value method
the lessee may not capitalize property for more than the asset's a) fair value b) book value c) historical cost d) liquidation value
a) fair value
a deferred tax asset represents a a) future tax benefit b) future tax liability c) future tax expense d) future taxable amt
a) future tax benefit
a deferred tax asset represents the a) increase in taxes saved in future years as a result of deductible temp diffs b) decrease in taxes saved in future years as a result of deductible temp diffs c) increase in taxes payable in futures years as a result of deductible temps diffs d) decrease in taxes payable in previous years as a result of cumulative temp diffs
a) increase in taxes saved in future years as a result of deductible temp diffs
An indication that the customer has not taken control of the good or service is a. the selling company has right to payment for the good or service. b. the customer has no significant risks or rewards of ownership. c. the selling company has transferred legal title to the asset. d. the customer has physical possession of the asset.
b) the company had no significant risks or rewards of ownership
** in computing amortization of a leased asset where there is no transfer of ownership or bargain purchase option, the lessee should subtract a) no residual value and depreciate over the lease of the term b) an unguaranteed residual value and depreciate over the term of the lease c) a guaranteed residual value and depreciate over the life of the asset d) an unguaranteed residual value and depreciate over the life of the asset.
a) no residual value and depreciate over the lease of the term
** the amount to be recorded as the cost of an asset under finance lease is equal to the a) present value of the lease payments b) present value of the lease payments or the fair value of the asset, whichever is lower c) present value of the lease payments plus the present value of an unguaranteed residual carrying value of the asset on the lessor's books
a) present value of the lease payments
What method does a company use to determine the transaction price for a contract that includes variable consideration when the company has numerous other contracts with similar characteristics and there are more than two possible results? a. Expected value method b. Most likely value method c. Expected outcome method d. Most likely amount method
a. expected value method
** Mays Company has a machine with a cost of $750,000 which also is its fair value on the date the machine is leased to Park Company. The lease is for 6 years and the machine is estimated to have an unguaranteed residual value of $75,000. If the lessor's interest rate implicit in the lease is 12%, the six beginning-of-the-year lease payments would be 12%, 6 periods PV Annuity Due 4.60478 PV Ordinary Annuity 4.11141 PV Single Sum .50663 a. $162,874. b. $154,623. c. $146,587. d. $125,00
b) $154,623 [$750,000 - ($75,000 × .50663)] ÷ 4.60478 = $154,623.
blossom comp reported the following results for the year ended dec 31, 2020, its first year of operations: income (per books before income taxes) $3302000 taxable income 4451000 the disparity bw book income and taxable income is attributable to a temp diff, which will reverse in 2021. what should blossom record as a net deferred tax asset or liability for the year ended dec 31, 2020, assuming that the enacted tax rates in effect are 35% in 2020 and 30% in 2021? a) $402150 deferred tax liability b) 344700 deferred tax asset c) 402150 deferred tax asset d) 344700 deferred tax liability
b) $344700 deferred tax asset (4451000 - 3302000) x 30% = 344700
On January 1, 2023, Ivanhoe Company sold goods to Sarasota Company for $404,300 in exchange for a 4-year, zero-interest-bearing note with a face amount of $636,172 (imputed rate of 12%). The goods have an inventory cost on Ivanhoe's books of $240,000. What amount of Sales Revenue should Ivanhoe recognize in 2023? a. $636,172 b. $404,300 c. $231,872 d. $240,000
b) $404,300
Cullumber Company purchased 200 of the 1,000 outstanding shares of Marigold Company's common stock for $690,000 on January 2, 2021. During 2021, Marigold Company declared dividends of $135,000 and reported earnings for the year of $310,000. If Cullumber Company uses the equity method of accounting for its investment in Marigold Company, its Equity Investments (Marigold) account at December 31, 2021 should be A. $752,000. B. $725,000. C. $690,000. D. $663,000.
b) $725,000 690,000 + (310,000 x 0.20) - (135,000 x 0.20) = $725,000
cullumber comp has a machine w a cost of $764800 which also is its fair market value on the date the machine is leased to nobu company. the lease is for 6 years and the machine is estimated to have an unguaranteed residual value of $76480. if the lessor's interest rate implicit is 12%, the amount of each of the six beginning of year lease pmts would be: pv of 1 at 12% for 6 periods 0.50663 fv od 1 at 12% for 6 periods 1.97382 pv of ordinary annuity of 1 at 12% for 6 periods
b) 157674 machine cost 764800 - unguaranteed residual value 76480 = 688320 x pv of 1 at 12% for 6 periods 0.50663 = 348724 / pv of annuity due of 1 at 12% for 6 periods 4.60478 = 157674
Carla Vista Corp. prepared the following reconciliation for 2021, its first year of operations: pretax fi for 2021 $2067000 tax exempt interest (370000) originating temp diff (711000) taxable income $986000 the temp diff will reverse evenly over the next two years at an enacted tax rate of 35%. the enacted tax rate for 2021 is 30%. what amt should carla vista report in its 2021 income statement as the deferred portion of the provision for income taxes? a) 119350 b) 248850 c) 213300 d) 129500
b) 248850 $711000 x 35% tax rate = 248850
trading securities are generally held for less than a) 3 weeks b) 3 months c) 6 months d) 12 months
b) 3 months
**on jan 1, 2023, ivanhoe comp sold goods to sarasota comp for $404,300 in exchange for a 4 year, zero interest bearing note with a face amt of $636,172 (imputed rate of 12%). the goods have an inventory cost on ivanhoe's books of $240k. what amt of sales rev should ivanhoe recognize in 2023? a) 636,172 b) 404,300 c) 231,872 d) 240,000
b) 404,300
** sarasota comp enters into a contract w a customer to build a warehouse for $402,100, with a performance bonus $100,400 that will be paid based on the timing of completion. the amount of the performance bonus decrease by 20% per week for every week beyond the agreed-upon completion date. the contract requirements are similar to contracts that sarasota has performed previously, and management believes that such experience is predictive for this contract. management estimates that there is a 50%
b) 488,444 402100 + (100400 x 100%) x 0.50 = 251,250 402100 + (100400 x 80%) x 0.30 = 144,726 402100 + (100400 x 60%) x 0.20 = 92,468 251,250 + 144,726 + 92,468 = $488,444
**cullumber comp purchased 200 of the 1000 outstanding shares of marigold comp's common stock for $690k on jan 2, 2021. during 2021, marigold comp declared dividends of $135k and reported earnings for the year of $310k. if cullumber comp uses the equity method of acct for its investment in marigold comp, its equity investments (marigold) account at dec 31, 2021 should be a) 752,000 b) 725,000 c) 690,000 d) 663,000
b) 725,000 690000 + (310000 x 0.20) - (135000 x 0.20) = 725000
a deferred tax valuation allowance account is used to recognize a reduction in a) both a deferred tax asset and a deferred tax liability b) a deferred tax asset only c) a deferred tax liability only d) income tax expense
b) a deferred tax asset only
under the asset-liability method, deferred taxes should be presented on the balance sheet a) as one net debit or credit amount b) as either net noncurrent deferred tax assets or noncurrent deferred tax liabilities c) in two amounts: one for the net debit amount and one for the net credit amount d) as reductions of the related asset or liability accounts
b) as either net noncurrent deferred tax assets or noncurrent deferred tax liabilities
in computing deferred income taxes for which graduated tax rates are a significant factor, companies are required to use the a) graduated rates b) average rates c) incremental rates d) actual rates
b) average rates
recognition of tax benefits in the loss year due to a loss carryforward requires a) the establishment of a deferred tax liability b) the establishment of a deferred tax asset c) the establishment of an income tax refund receivable d) only a note to the financial statements
b) the establishment of a deferred tax asset
on dec 31, 2021, winston inc has determined that it is more likely than not that $256000 of a $610000 deferred tax asset will not be realized. the journal entry to record this reduction in asset value will include a a) debit to income tax expense for $354000 b) credit to the allowance to reduce deferred tax asset to expected realizable value of $256000 c) debit to income tax payable of $256000 d) credit to income tax expense for $354000
b) credit to the allowance to reduce deferred tax asset to expected realizable value of $256000
**under the equity method, the investment account is decreased by all of the following except the investor's proportionate share of a) dividends paid by the investee b) declines in fair value of the investment c) the losses of the investee d) all of these are correct
b) declines in fair value of the investment
under the equity method, the investment account is decreased by all of the following except the investor's proportionate share of a) dividends paid by the investee b) declines in the fair value of the investment c) the losses of the investee d) all of these are correct
b) declines in the fair value of the investment
one criterion that indicates that a company should disregard revenue guidance for contracts is when a) the contract has commercial substance b) each party can unliaterially terminate the contract without compensation c) each party's rights regarding the goods or services to be transferred can be identified d) the payment terms for the goods and services to be transferred can be identified
b) each party can unilaterally terminate the contract without compensation
** a contract should be treated as having multiple performance obligations if a) each service provided in the contract is interdependent b) each performance obligation is not highly dependent on other promises in the contract c) the contract creates enforceable rights or obligations d) each service provided in the contract is interrelated
b) each performance obligation is not highly dependent on other promises in the contract
** which of the following would never require reporting deferred tax assets or deferred tax liabilities? a) depreciation on equipment b) expenses incurred to obtain state bonds c) accrual of warranty expense d) rent revenue received in advance
b) expenses incurred to obtain state bonds
a correct valuation is a) available for sale securities at amortized cost b) held to maturity securities at amortized cost c) trading securities at amortized cost d) none of these answers are correct
b) held to maturity securities at amortized cost
the deferred tax expense is the a) increase in the balance of the deferred tax asset minus the increase in the balance of the deferred tax liability b) increase in the balance of the deferred tax liability minus the increase in the balance of the deferred tax asset c) increase in the balance of the deferred tax asset plus the increase in the balance of the deferred tax liability d) decrease in the balance of the deferred tax asset minus the increase in the balance of the deferred tax liability
b) increase in the balance of the deferred tax liability minus the increase in the balance of the deferred tax asset
** On January 1, 2018, Ogleby Corporation signed a five-year non cancelable lease for equipment. The terms of the lease called for Ogleby to make annual payments of $180,000 at the beginning of each year for five years with title passing to Ogleby at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Ogleby uses the straight-line method of depreciation for all of its fixed assets. Ogleby accordingly accounts for this lease transaction as a finance
b) interest expense of $44,764 [750,578 - 180,000 - (180,000 - 57,058)] x 0.10 = $44,764
income tax expense is based on a) taxable income b) pretax income c) operating income d) income from continuing operations
b) pretax income
which of the following are temp diffs that are normally classified as expenses or losses and are deductible after they are recognized in financial income? a) advance rental receipts b) product warranty liabilities c) depreciable property d) fines and expenses resulting from a violation of law
b) product warranty liability
advantages to lessors in leasing assets include all of the following except a) profitable interest margins b) protection against obsolescence c) high residual value d) tax benefits
b) protection against obsolescence
** a loss in the current period on a contract expected to be profitable upon completion in a later year is a) recognized under both the cost-recovery method and the percentage of completion method b) recognized only under the percentage of completion method c) recognized only under the cost recovery method d) not recognized under either the cost recovery method or the percentage of completion method
b) recognized only under the percentage of completion method
a valuation account is used to a) reduce a deferred tax liability b) reduce a deferred tax asset c) increase a deferred tax liability d) increase a deferred tax asset
b) reduce a deferred tax asset
the unrealized gains and losses on available for sale securities are a) reported on individual securities b) reported on the portfolio of investments c) not reported at all d) none of these answers are correct
b) reported on the portfolio of investments
taxable amounts are temp diffs that a) decrease taxable income in future years b) require the recording of a deferred tax liability c) require the recording of a deferred tax asset d) increase pretax financial income in future years
b) require the recording of a deferred tax liability
which of the following is not a criterion for a lease to be recorded as a finance lease? a) there is a transfer of ownership b) the lease is cancelable c) the lease term is for the major part of the economic life of the asset d) there is a bargain-purchase option
b) the lease is cancelable
in a bill and hold arrangement, which of the following is not one of the criteria which must be met for the customer to have obtained control of the product? a) the reason for the arrangement must be substantive b) the product must be physically located in the seller's warehouse c) the product currently must be ready for physical transfer to the customer d) the seller cannot have the ability to use the product or to direct it to another customer
b) the product must be physically located in the seller's warehouse
the total charges to operations over the lease term are a) greater for a financial lease than an operating lease b) the same for a financial lease as an operating lease c) less for a finance lease than an operating lease d) not comparable bw a financial lease and an operating lease
b) the same for a financial lease than an operating lease
** for an unprofitable contract, the entire expected loss is recognized in the current period when a) the cost recovery method but not the percentage of completion method is used b) using either the percentage of completion method or the cost recovery mthod c) a method other than the percentage of completion method not the cost recovery method d) using the percentage of completion method but not the cost recovery method
b) using either the percentage of completion method or the cost recovery method
Investments in debt securities should be recorded on the date of acquisition at A. market value. B. cost plus brokerage fees and other costs incidental to the purchase. C. maturity value plus brokerage fees and other costs incidental to the purchase. D. lower of cost or market.
b. cost plus brokerage fees and other costs incidental to the purchase
Under the equity method, the investment account is decreased by all of the following except the investor's proportionate share of: A. dividends paid by the investee. B. declines in the fair value of the investment. C. the losses of the investee. D. all of these answer choices are correct
b. declines in the fair value of the investment
A contract should be treated as having multiple performance obligations if a. each service provided in the contract is interdependent. b. each performance obligation is not highly dependent on other promises in the contract. c. the contract creates enforceable rights or obligations. d. each service provided in the contract is interrelated.
b. each performance obligation is not highly dependent on other promises in the contract
Which of the following would never require reporting deferred tax assets or deferred tax liabilities? A. Depreciation on equipment. B. Expenses incurred to obtain state bonds. C. Accrual of warranty expense. D. Rent revenue received in advance
b. expenses incurred to obtain state bonds
A loss in the current period on a contract expected to be profitable upon completion in a later year is: a. recognized under both the cost-recovery method and the percentage-of-completion method. b. recognized only under the percentage-of-completion method. c. recognized only under the cost-recovery method. d. not recognized under either the cost-recovery method or the percentage-of-completion method
b. recognized only under the percentage-of-completion method
For an unprofitable contract, the entire expected loss is recognized in the current period when a. the cost-recovery method but not the percentage-of-completion method is used. b. using either the percentage-of-completion method or the cost-recovery method. c. a method other than the percentage-of-completion method nor the cost-recovery method is used. d. using the percentage-of-completion method but not the cost-recovery method
b. using either the percentage-of-completion method or the cost-recovery method
ivanhoe comp leased machinery to conecuh company on jan 1, 2025 for a ten year period expiring dec 31, 2034. equal annual pmts under the lease are $302000 and are due on jan 1 of each year. the first pmy was made on jan 1, 2025. the rate of interest used by ivanhoe and conecuh is 9%. the cash selling price of the machinery is $2114000 and the cost of the machinery on ivanhoe's acct records was $1869000. assuming that the lease is appropriately recorded as a sale for acct purposes by ivanhoe, what amt of interest rev would ivanhoe record for the year ended dec 31, 2025? a) 189920 b) 80520 c) 162951 d) 163080
c) 162951 pv of min lease pmts = 2112565 - cash pmt 1/1/25 302000 = 1810565 x 0.09 int rate = 162,951
crane comp leased machinery to conecuh comp on jan 1, 2025 for a 10 year period expiring dec 31, 2034. equal annual pmts under the lease are $307000 and are due on jan 1 of each year. the first pmt was made on jan 1, 2025. the rate of interest used by crane and conecuh is 9%. the cash selling price of the machinery is $2149000 and the cost of the machinery on crane's acct records was $1868000. assuming that the lease is appropriately recorded as a sale for accounting purposes by crane, what amt of interest revenue would crane record for the year ended dec 31, 2025? a) 189870 b) 72270 c) 165649 d) 165780
c) 165649 pv of lease pmts: 307000 x pv of annuity due n=10, 9% = 307000 x 6.99525 = 2147541 2147541 - 307000 = 1842000 x 0.09 = 165649
crane comp leased machinery to cooney comp on july 1, 2025 for a 10 year period. equal annual pmts under the lease are $151300 and are due on july 1 each year. the first pmt was made on july 1, 2025. the rate of interest used by crane and known to cooney is 9%. the cash selling price of the machinery is $1059100 and the cost of the machinery on crane's acct records was $930700. assuming that the lease is approximately recorded as a sale for acct purposes by crane, what amt of interest revenue wo
c) 40819 151300 x pv of annunity due 6.99525 = 1059391 x 0.09 interest rate x 6/12 = 40819
sunland comp leased machinery to cooney comp on july 1, 2025 for a 10 year period. equal annual pmts under the lease are $151400 and are due on july 1 of each year. the first pmt was made on july 1, 2025. the rate of interest used by sunland and known to cooney is 9%. the cash selling price of the machinery is $1059800 and the cost of the machinery on sunland's acct records was $930500. assuming that the lease is appropriately recorded as a sale for acct purposes by sunland, what amt of int rev would sunalnd record for the year ended dec 31, 2025? a) 95382 b) 81756 c) 40846 d) 0
c) 40846 (pv of minimum lease pmts 1059800 - lease pmt 7/1/25 151400) x 0.09 int rate x (6/12) since started july = 40846
oriole company owns 40600 of the 101500 outstanding shares of blue spruce inc common stock. during 2022, blue spruce earns $649,600 and pays cash dividends of $487,200. if the beginning balance in oriole's investment account was $433,800, the balance at dec 31, 2022 should be a) 368,840 b) 433,800 c) 498,760 d) 693,640
c) 498,760 beg bal 433,800 + (649,600 x 0.4) - (487200 x 0.40) = 498760
cullumber corp has income before income taxes of $1081000 in 2022. the current provision for income taxes is $211000 and the provision for deferred income taxes is $183000. cullumber's net income for 2022 is a) 898000 b) 1053000 c) 687000 d) 870000
c) 687000 income before income taxes 1081000 - current provision for income taxes 211000 - provision for deferred income taxes 183000 = 687000
which of the following best describes current practice in accounting for leases? a) leases are not capitalized b) leases similar to installment purchases are capitalized c) all long-term leases are capitalized d) all leases are capitalized
c) all long-term leases are capitalized
** estimated employee compensation expenses earned during the current period but expected to be paid in the next period causes a) an increase in a deferred tax liability b) a decrease in a deferred tax liability c) an increase in a deferred tax asset d) a decrease in a deferred tax asset
c) an increase in a deferred tax asset
under the cost-recovery method, a contract loss would: a) be treated in a reverse manner to that of the percentage-of-completion method b) increase the inventory balance c) be reported separately as a liability d) all of the above
c) be reported separately as a liability
if the parent company owns 90% of the subsidiary comp's outstanding common stock, the comp should generally account for the investment in the subsidiary under the a) cost method b) fair value method c) consolidation method d) equity method
c) consolidation method more than 50% = consolidation method
investments in debt securities should be recorded on the date of acquisition at a) lower of cost or market b) market value c) cost plus brokerage fees and other costs incidental to the purchase d) maturity value plus brokerage fees and other costs incidental to the purchase
c) cost plus brokerage fees and other costs incidental to the purchase
for what assets does the following impairment model used: impairment measured as the diff bw the lower of amortized cost or fair value? a) loans, receivables, and debt securities measured at amortized cost b) debt securities measured at fair value w gains and losses recorded in other comprehensive income (available for sale) c) debt securities measured at fair value w gains and losses recorded in net income d) all of these answers are correct
c) debt securities measured at fair value w gains and losses recorded in net income
for the lessee, all of the following are advantages of leasing expect a) less costly financing b) flexibility c) elimination of all risks of obsolescence d) 100% financing at fixed rates
c) elimination of all risks of obsolescence
an ownership interest of 30% of the common stock of another company should be accounted for using the a) consolidated method b) cost method c) equity method d) fair value method
c) equity method
a deferred tax liability represents the a) increase in taxes saved in future years as a result of deductible temp diffs b) decrease in taxes saved in future years as a result of deductible temp diffs c) increase in taxes payable in future years as a result of taxable temp diffs d) decrease in taxes payable in future years as a result of taxable temp diffs
c) increase in taxes payable in future years
a deferred tax liability represents the a) increase in taxes saved in future years as a result of deductible temp diffs b) decreases in taxes saved in future years as a result of deductible temp diffs c) increase in taxes payable in future years as a result of taxable temp diffs d) decrease in taxes payable in futures years as a result of taxable temp diffs
c) increase in taxes payable in futures years as a result of taxable temp diffs
** On January 1, 2018, Ogleby Corporation signed a five-year non cancelable lease for equipment. The terms of the lease called for Ogleby to make annual payments of $180,000 at the beginning of each year for five years with title passing to Ogleby at the end of this period. The equipment has an estimated useful life of 7 years and no salvage value. Ogleby uses the straight-line method of depreciation for all of its fixed assets. Ogleby accordingly accounts for this lease transaction as a finance
c) interest expense of $57,058 and amortization expense of $107,225. (750,578 - 180,000) x 0.10 = 57,058; (750,578 - 0) / 7 years = 107,225 since ownership transfers at end of lease, use 7 year economic life & there is no salvage value or residuals
** in an operating lease, the lessee records a) amortization expense b) interest expense c) lease expense d) amortization expense and lease expense
c) lease expense
which type of revenue or gain is generally recognized with the passage of time? a) revenue from sales b) revenue from fees or services c) long-term construction contracts d) gain or loss from disposition
c) long-term construction contracts
the lessee records a finance lease as an asset and a liability at the a) pv of the minimum lease pmts b) fair market value of leased asset at lease inception c) lower of pv of minimum lease pmts or the fair market value of leased asset d) total amt of minimum lease pmts
c) lower of pv of minimum lease pmts or the fair market value of leased asset
the lessee records a finance lease as an asset and a liability at the a) pv of the minimum lease pmts b) fair market value of the leased asset at the lease inception c) lower of the pv of the minimum lease pmts or the fair market value of the leased asset d) total amt of the minimum lease pmts
c) lower of the pv of the minimum lease pmts or the fair market value of the leased asset
the distinction, for the lessor, bw a direct financing lease and a sales-type lease is the presence or absence of a) a bargain purchase option b) minimum lease pmts c) manufacturer's or dealer's profit d) an unguaranteed residual value
c) manufacturer's or dealer's profit
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? a) billings on construction in process as a deferred revenue and construction in process as a deferred expense b) billings on construction in process as revenue and construction in process as inventory c) net, as a current asset if a debit balance, and as a current liability if a credit balance d) net, as revenue from construction if a credit balance, and as a loss from construction if debit balance
c) net, as a current asset if a debit balance, and as a current liability if a credit balance
**unrealized gains and losses on held-to-maturity securities are a) reported on the balance sheet b) reported on the income statement c) not recognized bc these securities are reported at their amortized cost d) none of these are correct
c) not recognized bc these securities are reported at their amortized cost
the unrealized holding gain or loss on trading securities is reported as a) other comprehensive income b) a separate component of stockholders' equity c) part of net income d) an addition to (deduction from) the trading securities account balance
c) part of net income
when using the percentage-of-completion method, the company a) recognizes revenues and gross profit only when the contract is completed b) accumulates construction costs only in an inventory account (construction in process) c) recognizes revenues and gross profit each period during the contract d) accumulates progress billings in an inventory accounts (construction in process)
c) recognizes revenues and gross profit each period during the contract
under the equity method, if an investee comp generates net income, the investor comp a) does not recognize any share of the net income b) records its proportionate share of the net income as dividend income c) records its proportionate share as an increase in its investment account d) records its proportionate share as an unrealized gain
c) records its proportionate share as an increase in its investment account
the lessor expenses initial direct costs in the year of incurrence in a(n) a) direct financing lease b) operating lease c) sales-type lease d) direct financing lease and sales-type lease
c) sales-type lease
which of the following statements related to loss carryback is NOT correct? a) the comp may carry the net operating loss back 2 years and receive refunds for income taxes paid in those years b) the comp must apply the loss to the earlier year first and then to the second year c) the comp may carry the net operating loss back 3 years and receive refunds for income taxes paid in those years d) the comp may carry forward any loss remaining after the two year carryback to offset future taxable income
c) the company may carry the net operating loss back 3 years and receive refunds for income taxes paid in those years
the lease liability account should be disclosed as a) all current liabilites b) all noncurrent liabilities c) the current portion in current liabilities and the remainder in noncurrent liabilities d) deferred credits
c) the current portion in current liabilities and the remainder in noncurrent liabilities
an indication that the customer has not taken control of the good or service is a) the selling company has right to payment for the good or service b) the customer has physical possession of the asset c) the customer has no significant risks or rewards of ownership d) the selling company has transferred legal title to the asset
c) the customer has no significant risks or rewards of ownership
** for a sales-type lease, a) the sales price includes the present value of the unguaranteed residual value b) the present value of the guaranteed residual value is deducted to determine the cost of goods sold c) the gross profit will be the same whether the residual value is guaranteed or unguaranteed d) assets are depreciated by the lessor
c) the gross profit will be the same whether the residual value is guaranteed or unguaranteed
** which of the following is a correct statement of one of the classification tests? a) the lease transfers ownership of the property to the lessor b) the lease contains a purchase option c) the lease term is equal to or more than 75% of the estimated economic life of the leased property d) the lease payments (excluding executory costs) equal or exceed 90% of the fair value of the leased property
c) the lease term is equal to or more than 75% of the estimated economic life of the leased property
unrealized holding gains or losses which are recognized in income are from debt securities classified as a) held to maturity b) available for sale c) trading d) none
c) trading
Estimated employee compensation expenses earned during the current period but expected to be paid in the next period causes: A. An increase in a deferred tax liability. B. A decrease in a deferred tax liability. C. An increase in a deferred tax asset. D. A decrease in a deferred tax asset
c. an increase in a deferred tax asset
Unrealized gains and losses on held-to-maturity securities are: A. reported on the balance sheet. B. reported on the income statement. C. not recognized because these securities are reported at their amortized cost. D. none of these answer choices are correct.
c. not recognized because these securities are reported at their amortized cost
blossom inc reports taxable and financial income loss of $768000 for 2020. its pretax financial income for the last two years was as follows: 2018 315000 2019 433000 the amount that blossom inc reports as a new loss for financial reporting purposes in 2020, assuming that it uses the carryback provisions, and that the tax rate is 30% for all period affected, is a) $650000 loss b) $0 c) $195000 loss d) $543600 loss
d) $543600 loss 315000 x 30% + 433000 x 30% = 224400, 768000 - 224400 = 543600
blossom builders inc is using the cost recovery method for a $12322000 contract that will take 3 years to complete. data at december 31, 2021, the end of the first year are as follows: costs incurred to date - $5209000 est cost to complete - 7821000 billings to date - 4929000 collections to date - 4553000 the gross profit or loss that should be recognized for 2021 is: a) $0 b) $202667 loss c) $240433 loss d) $608000 loss
d) $608000 loss contract price 12322000 - costs incurred to date + est cost 5209000 + 7821000 = 608000 loss
carla vista corp purchased 36998 shares of common stock of the pharoah corp for $50 per share on jan 2, 2022. during 2022, pharoah corp had 42300 shares of common stock outstanding, paid cash dividends of $123,700 and reported net income of $324,900. carla vista corp should report revenue from investment for 2022 in the amount of a) $0 b) $32,162 c) $52,312 d) $84,474
d) $84,474 36998 / 142300 shares = 26% --> equity method 26% x $324900 = $84474
oriole corip is a lessee w a financial lease. the asset is recorded at $927000 and has an economic life of 8 years. the lease term is 5 years. the asset is expected to have a market value of $309000 at the end of 5 years, and a market value of $103000 at the end of 8 years. the lease agreement provides for the transfer of title of the asset to the lessee at the end of the lease term. what amount of amortization expense would the lessee record for the first year of the lease? a) 185400 b) 164800 c) 123600 d) 103000
d) 103000 asset cost 927000 - market value at end of economic life 103000 / 8 years = 103000
sandhill inc had pretax acct income of $1810000 and a tax rate of 35% in 2021, its first year of operations. during 2021 the comp had the following transactions: received rent from barrett co for 2022 $66800 municipal bond income 83500 depreciation for tax purposes in excess of book depreciation 43800 installment sales revenue to be collected in 2022 131000 for 2021, what is the amt of income taxes payable for sandhill inc? a) 658175 b) 611415 c) 624925 d) 566475
d) 566475 pretax fi 1810000 + rent receipt 66800 - bond income 83500 - deprec adj 43800 - installment sales rev 131000 = taxable income 1618500 x 35% tax rate = 566475
cullumber inc, an equipment dealer, sells equipment on jan 1, 2021, to bramble company for $201100. also, on jan 1, 2021, cullumber agrees to repurchase this equipment from bramble company on dec 31, 2022, for a price of $234700. at 1/1/21, cullumber should record a) sales rev of $201,100 b) sales rev of $201,100 and a liability of $33,600 c) sales rev of $201,100 and interest exp of $33,600 d) a liability of $201,100
d) a liability of $201,100 this transaction represents a repurchase agreement. at 1/1/21, cullumber should record a liability of $201,100 bc this agreement is a financing transaction and not a sale
a requirement for a security to be classified as held to maturity is a) ability to hold the security to maturity b) positive intent c) the security must be a debt security d) all of these answers are correct
d) all of these answers are correct
**a requirement for a security to be classified as held-to-maturity is a) ability to hold the security to maturity b) positive intent c) the security must be a debt security d) all of these are correct
d) all of these are correct
debt securities may be classified as a) held to maturity b) trading c) available for sale d) all of these are correct
d) all of these are correct
major reasons why a company may become involved in leasing to other companies is (are) a) interest revenue b) high residual values c) tax incentives d) all of these are correct
d) all of these are correct
which of the following is an advantage to the lessee of leasing? a) protection against obsolescence b) leases often do not require any down payment c) lease agreements may contain less restrictive provisions than other debt agreements d) all of these are correct
d) all of these are correct
which of the following statements is correct for the lessor? a) in a direct-financing lease, initial direct costs are added to the net investment in the lease b) in a sales-type lease, initial direct costs are expensed in the year of incurrence c) for operating leases, initial direct costs are deferred and allocated over the lease term d) all of these are correct
d) all of these are correct
which of the following statements is correct for the lessor? a) in a direct-financing lease, intitial direct costs are added to the net investment in the lease b) in a sales-type lease, initial direct costs are expensed in the year of incurrence c) for operating leases, initial direct costs are deferred and allocated over the lease term d) all of these are correct
d) all of these are correct
** in a finance lease, the lessee records a) amortization expense only b) interest expense only c) lease expense only d) amortization expense and interest expense
d) amortization expense and interest expense
which of the following is included in the minimum lease payment? a) maintenance costs b) unguaranteed residual value c) executory costs d) bargain purchase option
d) bargain purchase option
the seller of a good or service should recognize revenue when a) it identifies the contract with customers b) it identifies the separate performance obligations in the contract c) it determines the transaction price d) each performance obligation is satisfied
d) each performance obligation is satisfied
** which of the following diffs would result in future deductible amounts? a) revenues or gains that are recognized in financial income but are never included in tax income b) revenues or gains that are taxable after they are recognized in financial income c) expenses or losses that are tax deductible after they are recognized in financial income
d) expenses or losses that are tax deductible after they are recognized in financial income
debt securities that are bought and held primarily for sale in the near term are reported as a) cost b) amortized cost c) net realizable value d) fair value
d) fair value they are classified as trading securities and reported at fair value
an ownership interest of 15% in another comp's voting stock should be accounted for using the a) consolidation method b) equity method c) cost method d) fair value method
d) fair value method little to no influence (0-20%) uses fair value method
** which of the following diffs results in a deferred tax liability in the year the diff originates? i. accrued premium exp ii. prepaid insurance exp iii. depreciation exp using straight line method for book purposes and accelerated depreciation for tax purposes a) i and ii only b) ii only c) iii only d) ii and iii only
d) ii and iii only
the billings on construction in process account is reported: a) as a revenue on the income statement b) in the current asset section only c) in the current liability section only d) in either the current asset or current liability section
d) in either the current asset or current liability section
which of the following is a permanent difference? a) installment sales accounted for on an accrual basis b) product warranty liabilities c) deductible pension funding exceeding expense d) interest received on state and municipal obligations
d) interest received on state and municipal obligations
any lease that does not qualify as a direct financing lease or a sales-type lease is classified and accounted for by the lessor as a(n) a) finance lease b) residual lease c) temporary lease d) operating lease
d) operating lease
an unrealized holding gain on a company's available for sale securities should be reflected in the current financial statements as a) a direct increase to retained earnings b) a current gain resulting from holding securities c) a note or parenthetical disclosure only d) other comprehensive income and included in the equity section of the balance sheet
d) other comprehensive income and included in the equity section of the balance sheet
a loss in the current period on a contract expected to be profitable upon completion in a later year is a) recognized only under the cost-recovery method b) not recognized under either the cost-recovery method or the percentage-of-completion method c) recognized under both the cost-recovery method and the percentage-of-completion method d) recognized only under the percentage-of-completion method
d) recognized under only the percentage-of-completion method
** the lease receivable amount includes the present value of a) rental payments only b) rental payments plus present value of unguaranteed residual value only c) rental payments plus present value of guaranteed residual value only d) rental payments plus present value of guaranteed and unguaranteed residual values
d) rental payments plus present value of guaranteed and unguaranteed residual values
which method of measuring the fair value of a performance obligation is dependent on the standalone selling prices of other goods or services promised in the contract? a) adjusted market assessment b) expected cost plus a margin c) standalone selling price d) residual approach
d) residual approach
** at dec 21, 2022, balance sheet date, ring corp reports an accrued receivable for financial reporting purposes but not for tax purposes. when this asset is recovered in 2023 a) total income tax expense for 2023 will exceed current tax expense for 2023 b) pretax financial income will exceed taxable income in 2023 c) ring will records an increase in a deferred tax asset in 2023 d) ring will record a decrease in a deferred tax liability in 2023
d) ring will record a decrease in a deferred tax liability in 2023
a lease that involves a manufacturer's or dealer's profit is a(n) a) direct financing lease b) finance lease c) operating lease d) sales type lease
d) sales type lease
income tax payable is based (computed) on a) income before taxes b) income for book purposes c) pretax financial income d) taxable income
d) taxable income
** a major distinction bw temp and perm diffs is a) temp diffs occur frequently, whereas perm diffs occur only once b) once an item is determined to be a temp diff, it maintains its status, however a perm diff can change in status w the passage of time c) perm diffs are not representative of acceptable acct practice d) temp diffs reverse themselves in subsequent acct periods, whereas perm diffs do not reverse
d) temp diffs reverse themselves in subsequent acct periods, whereas perm diffs do not reverse
tax rates other than the current tax rate may be used to calculate the deferred income tax amt for financial statement reporting if a) it is probable that a future tax rate change will occur b) it appears likely that a future tax rate will be greater than the current tax rate c) it appears likely that a future tax rate will be less than the current tax rate d) the enacted tax rate is expected to apply in future years
d) the enacted tax rate is expected to apply in future years
a debt security is transferred from one category to another. generally accepted accounting principles require that for this particular reclassification (1) the security be transferred at fair value at the date of transfer, and (2) the unrealized gain or loss at the date of transfer currently carried as a separate component of stockholders' equity be amortized over the remaining life of the security. what type of transfer is being described? a) transfer from trading to available for sale b) transfer from available for sale to trading c) transfer from held to maturity to available for sale d) transfer from available for sale to held to maturity
d) transfer from available for sale to held to maturity
on its dec 31, 2021 balance sheet, ivanhoe co. reported its investment in trading securities, which had cost $502,300, at fair value of $476,800. at dec 31, 2022, the fair value of the securities was $493,000. what should ivanhoe report on its 2022 income statement as a result of the increase in fair value of the investments in 2022? a) $0 b) unrealized loss of $9,300 c) realized gain of $16,200 d) unrealized gain of $16,200
d) unrealized gain of $16,200 476800 - 502300 = 25500 493000 - 502300 = 9300 25500 - 9300 = 16,200 gain
select the correct statement regarding the impact on stockholders equity of a transfer from available for sale to trading a) the comp may omit recognition of fair value b) unrealized gain or loss at date of transfer is carried as a separate component of stockholders equity which is amortized over remaining life of security c) separate component of stockholders equity is increased or decreased by unrealized holding gain or loss at date of transfer d) unrealized gain or loss at date of transfer increases or decreases stockholders equity
d) unrealized holding gain or loss at the date of transfer increases or decreases stockholders equity
in computing the present value of the minimum lease payments, the lessee should a) use its incremental borrowing rate in all cases b) use either its incremental borrowing rate or the implicit rate of the lessor, whichever is higher, assuming that the implicit rate is known to the lessee c) use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee d) use the lessor's implicit interest rate if it is practicable and otherwise use its incremental borrowing rate
d) use the lessor's implicit interest rate if it is practicable and otherwise use its incremental borrowing rate
in determining the transaction price, the company must consider: a) variable consideration, but not non-cash consideration b) non-cash consideration, but not the time value of money c) the time value of money, but not consideration payable d) variable consideration, non-cash consideration, time value of money, and consideration payable
d) variable consideration, non-cash consideration, time value of money, and consideration payable
Koch & Knell is a full-service technology company. They provide equipment, installation services as well as training. Customers can purchase any product or service separately or as a bundled package.Container Corporation purchased computer equipment, installation and training for a total cost of$250,000 on March 15, 2023. Estimated standalone fair values of the equipment, installation, and training are $190,000, $60,000, and $30,000 respectively. The transaction price allocated to equipment, installation and training is a. $90,000, $60,000, $30,000 respectively b. $48,000, $48,000, $48,000 respectively c. $144,000 for the entire bundle. d. $169,643, $53,571 and $26,786 respectively
d. $169,642, $53,571, and $26,786 respectively (190,000 / 280,000) x 250,000 = 169,643 (60,000 / 280,000) x 250,000 = 53,571 (30,000 / 280,000) x 250,000 = 26,786
Which of the following differences results in a deferred tax liability in the year the difference originates? I. Accrued premium expense. II. Prepaid insurance expense. III. Depreciation expense using straight-line method for book purposes and accelerated depreciation for tax purposes. A. I and II only. B. II only. C. III only. D. II and III only.
d. II and III only
A requirement for a security to be classified as held-to-maturity is A. ability to hold the security to maturity. B. positive intent. C. the security must be a debt security. D. all of these answer choices are correct
d. all of these answer choices are correct
Which of the following differences would result in future deductible amounts? A. Revenues or gains that are recognized in financial income but are never included in taxable income. B. Revenues or gains that are taxable after they are recognized in financial income. C. Expenses or losses that are tax deductible before they are recognized in financial income. D. Expenses or losses that are tax deductible after they are recognized in financial income
d. expenses or losses that are tax deductible after they are recognized in financial income
t the December 31, 2022 balance sheet date, Ring Corporation reports an accrued receivable for financial reporting purposes but not for tax purposes. When this asset is recovered in 2023: A. total income tax expense for 2023 will exceed current tax expense for 2023. B. pretax financial income will exceed taxable income in 2023. C. Ring will record an increase in a deferred tax asset in 2023. D. Ring will record a decrease in a deferred tax liability in 2023
d. ring will record a decrease in a deferred tax liability in 2023
A major distinction between temporary and permanent differences is A. temporary differences occur frequently, whereas permanent differences occur only once. B. once an item is determined to be a temporary difference, it maintains that status; however, a permanent difference can change in status with the passage of time. C. permanent differences are not representative of acceptable accounting practice. D. temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse
d. temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse
** at dec 31, 2021, sunland comp has an equity portfolio valued at $178,000. its cost was $144,000. if the securities fair value adj has a debit balance of $8600, which of the following journal entries is required at dec 31, 2021?
fair value adj 25400 unrealized holding gain/loss 25400 178000 - 144000 = 34000 - 8600 = 25400 unrealized gain
t/f: the lessee includes any unregulated residual value as part of the present value test
false
t/f: deferred tax expense is the total amount of income taxes that will be payable in the subsequent fiscal period
false deferred tax exp is the increase in a deferred tax liability but does not represent the total amt of taxes that will become payable in a subsequent fiscal period
t/f: a fair value hedge is recorded at amortized cost
false fair value hedges are recorded at fair value
t/f: investments are reported at market value on the balance sheet under the equity method
false investments reported under the equity method are carried at cost, and periodically adjusted by the investor's share of the investee's earnings
t/f: the principal advantage of the cost recovery method is that reported revenue reflects estimates rather than waiting for final results
false principal advantage of the cost recovery method is that reported revenue reflects final results rather than estimates
t/f: taxable temp diffs give rise to recording deferred tax assets
false taxable temps diffs give rise to recording deferred tax liabilities, not deferred tax assets
t/f: in a principal-agent relationship, the agent should use the gross method to recognize revenue
false the agent should use the net method to recognize revenue
t/f: to qualify for special accounting for hedges treatment, the hedging transaction must be at least moderately effective
false to qualify, the hedging transaction must be highly effective
t/f: unrealized gains and losses on held to maturity securities are reported on the income statement
false unrealized gains and losses are not recorded on held to maturity securities
t/f: using the asset liability method, deferred taxes should be classified into a new current amt and a net non current amt
false using the asset liability method, deferred taxes should be classified as a net non-current amt
t/f: a deferred tax liability represents the decrease in taxes payable in future years as a result of a taxable temporary difference
false when a temporary diff causes a decrease in future taxes payable, it is a deferred tax asset that is created, not a deferred tax liability
t/f: unrealized holding gains and losses on cash flow hedges are included in net income
false gains and losses on cash flow hedges are included in equity as part of other comprehensive income
t/f: transfers of securities bw categories of investments should be accounted for at cost
false transfers of securities bw categories of investments should be accounted for at fair value
T/F: Most revenue transactions pose few problems for revenue recognition because often the transaction is initiated and completed at the same time.
true
t/f: a fair value hedge may be used to offset the exposure to changes in the fair value of an unrecognized commitment
true
t/f: a performance obligation may be based on a customary business practice
true
t/f: a popular input measure used to determine progress toward completion is the cost-to-cost basis
true
t/f: an option to convert a convertible bond into shares of common stock is an embedded derivative
true
t/f: both the cost and fair value of all financial instruments must be reported in the notes to financial statements
true
t/f: companies recognize revenue over a period of time if (1) the customer controls the asset as it is created or (2) the company does not have an alternative use for the asset, with the following conditions: (a) the customer receives benefits as the company performs, and (b) the company has a right to payment
true
t/f: derivatives are used to manage risk
true
t/f: derivatives should be recognized in the financial statements as assets and liabilities
true
t/f: gains or losses on cash flow hedges are recorded in equity as part of other comprehensive income
true
t/f: if at the end of the lease term, the lessor does not have an alternative use for the asset, the lessee classifies the lease as a finance lease
true
t/f: one required disclosure for financial instruments is the description of the comp's valuation process
true
t/f: the fair value floor is determined as follows, amortized costs of afs debt securities less fair value of afs debt security
true
t/f: holdings bw 20% and 50% of another company's voting stock are accounted for using the equity method
true equity method is used for significant influence (20-50%)
