ACCT Final

Which of the following is true about accounts payable? 1. Accounts payable are also called trade accounts payable. 2. Accounts payable are generally interest-bearing. 3. Accounts payable are generally recorded upon receipt of the purchased goods.

1 & 3

Earnings per share (EPS) is

A distilled and important income figure, calculated as net income minus preferred dividends (income available to commonstockholders), divided by the weighted-average common shares outstanding. Companies must disclose earnings per shareon the face of the income statement.

Stock dividend

A dividend that is paid with additional shares of stock rather than in cash.

Weighted-average accumulated expenditures

A measure used in determining the amount of interest that can be capitalized

Restricted-stock awards

A plan in which a company transfers stock to the employee at the grant date.

Accumulated other comprehensive income

A separate category in stockholders' equity to record gains and losses that bypass the income statement.

Which of the following may be a current liability?

All of these answers are correct.

Depreciation

Allocation of an asset's cost over its useful life

Amortization

Allocation of the cost of intangible assets over their useful lives

Which of the following is reported as an operating expense?

Amortization Expense

Which of the following statements is true regarding an S Corporation?

An S Corporation does not pay income tax

How is the issuance of common and preferred stock recorded on the balance sheet?

As an increase in both the Common Stock and Preferred Stock accounts.

Under the cost model, how is property, plant, and equipment (PP&E) initially recorded?

At Cost

Which of the following is an example of a tangible asset classified as property, plant, and equipment (PP&E)?

Buildings and Land

The _______________ is the period of time during which a company must capitalize interest. It begins with the presence of three conditions: Expenditures for the asset have been ________. Activities that are necessary to get the asset ready for its intended use are __ __________. Interest cost is being _________.

Capitalization Period, made, in progress, incurred.

Amortization

Cost allocation of intangible assets

Depletion

Cost allocation of natural resources

Depreciation

Cost allocation of property, plant, and equipment

Capital Expenditure

Costs incurred to acquire or improve long-term assets

Which of the following is NOT a characteristic of property, plant, and equipment (PP&E)?

Decreases in value over time

Journal entry for the Loss on impairment

Determine by subtracting the Fair value from the book value

Which of these is not a depreciation method?

Double-Line Method

Which of the following illustrates the recoverability test?

Expected future cash flows > Carrying value of intangible asset = No impairment

An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as

Fair Value, Method Equity Method Income, A reduction of the investment

Deferred payment contracts are recognized using the installment sales method.

False

When assets are acquired in exchange for a company's own stock, the best measure of cost is the historical cost of the stock issued.

False

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

Franchise

Which of the following is not reported as part of income from continuing operations?

Goodwill

Companies should test indefinite life intangible assets at least annually for

Impairment

The _______________ is the amount by which the carrying amount of the asset exceeds its fair value

Impairment loss

Which of the following is included in the calculation of weighted average accumulated expenditure?

Interest costs

Which of the following is not considered a part of the definition of a liability?

Its liquidation is reasonably expected to require the use of existing resources classified as current assets or create other current liabilities.

The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were

Less than book value

Which intangible assets are amortized?

Limited-Life, Yes Indefinite-Life, No

What is the relationship between current liabilities and a company's operating cycle?

Liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if less).

What does MACRS stand for?

Modified Accelerated Cost Recovery System

Book Value

Original Cost - Accumulated Depreciation

Depreciable Base

Original Cost - salvage value

A deferred payment contract involves delaying _______ the for goods or services until a later date.

Payment

Which of the following costs is typically NOT capitalized as part of property, plant, and equipment (PP&E)?

Periodic Maintenance Costs

Which characteristic is not possessed by intangible assets?

Physical existence

When recording the issuance of preferred stock, the amount received is credited to which account?

Preferred Stock

Impairment

Recognition of a decrease in the value of an asset

Restricted-Stock Plans

Restricted-stock plans transfer shares of stock to employees, subject to an agreement that the shares cannot be sold, transferred, or pledged until vesting occurs.

The issuance for cash of no-par-value common stock at a price in excess of the stated value of the common stock is accounted for as follows except:

Retained Earnings is debited

One factor that is not considered in determining the useful life of an intangible asset is

Salvage Value

Dilutive Securities

Securities that can be converted to common stock. Upon conversion or exercise by the holder, the dilutive securities reduce(dilute) earnings per share. Companies with dilutive securities report both basic EPS and diluted EPS in their income statements.

Treasury stock

Stock repurchased by the company and held in its own treasury

Book Value

The carrying value of an asset on the balance sheet

Grant Date

The date at which a company grants stock options to employees. Public companies estimate the options' fair value as of that date, using an option-pricing model and any adjustments needed for unique factors. No adjustments occur after the grant date in response to subsequent changes (up or down) in the stock price.

Basic EPS

The earnings per share for a simple capital structure. A company with a complex capital structure reports both basic EPS and diluted EPS amounts on the face of its income statement.

Fair Value

The estimated value of an asset in an arm's length transaction

Par value

The nominal value per share of capital stock

Capitalization period

The period during which a company must capitalize interest

Revaluation

The process of adjusting the carrying value of an asset to its fair value

Improvements (betterments)

The substitution of a better asset for the one currently used

Accumulated depreciation

The total depreciation recognized on an asset since its acquisition

How is the cost of property, plant, and equipment (PP&E) allocated over its useful life?

Through Depreciation

What is the main purpose of recording the issuance of stock?

To provide a record of the company's capital structure and ownership interests.

What is the main purpose of the statement of stockholders' equity?

To provide information about the changes in the company's equity accounts during a specific period.

A special assessment by the municipality for sidewalks and a drainage system would be included in the cost of land.

True

Double-Declining-balance depreciation and sum-of-years'-digit depreciation methods are referred to as accelerated depreciation methods.

True

If an industrial firm uses the units-of-production method for computing depreciation on its only plant asset, factory machinery, the credit to accumulated depreciation from period to period during the life of the firm will

Vary with Production

A measure used in determining the amount of interest that can be capitalized. Computed by weighting construction expenditures by the amount of time (e.g., fraction of a year) that a company can incur interest cost on the expenditure.

Weighted-Average Accumulated Expenditures

Before the amount of the depreciation charge can be computed, three basic questions must be answered. Which option below is not included in the basic questions to ask?

What method of cost apportionment is best for this asset?

Total stockholders' equity represents

a claim against a portion of the total assets of a company

Compensation expense resulting from a compensatory stock option plan is generally

allocated to the periods benefited by the employee's required service.

Redeemable preferred stock is reported

as a liability

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.

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

Interest costs during construction are ______ as part of the cost of long-term assets.

capitalized

The payout ratio is calculated by dividing

cash dividends by net income less preferred dividends.

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

Investments in debt securities are generally recorded at

cost including brokerage and other fees.

If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a

credit to interest expense

Complex capital structure

exists whenever a company's capital structure includes dilutive securities.

In accounting for plant assets, which of the following outlays made after acquisition should be fully expensed in the period the expenditure is made?

expenditure made to maintain an existing asset so that it can function in the manner intended

Costs incurred internally to create intangibles are

expensed as incurred

If bonds are issued at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be

greater than if the straight-line method were used.

Debt securities that are accounted for at amortized cost, not fair value, are

held-to-maturity debt securities

Potentially dilutive security

is a security which can be exchanged for or converted into common stock and therefore upon conversion or exercise could dilute (or decrease) earnings per share. Included in this category are convertible securities, options, warrants, and other rights.

Recoverability test

is determined by comparing the Book Value to the Future Cash Flow

Diluted earnings per share

is the amount of earnings for the period available to each share of common stock outstanding and to each share that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the reporting period.

Basic earnings per share

is the amount of earnings for the period available to each share of common stock outstanding during the reporting period.

Which of the following is NOT a requirement for qualifying assets?

limited useful life

Trademarks, newspaper mastheads, and internet domain names are all examples of

marketing-related intangible assets.

Convertible bonds

may be exchanged for equity securities.

Liabilities are

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

Stock warrants outstanding should be classified as

paid-in capital

"Gains" on sales of treasury stock (using the cost method) should be credited to

paid-in capital from treasury stock.

Wriglee, Inc. went to court this year and successfully defended its patent from infringement by a competitor. The cost of this defense should be charged to

patents and amortized over the remaining useful life of the patent.

Plant assets purchased in exchange for a zero-interest-bearing note should be accounted for at the:

present value of the note

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

stated value

A plant asset has a cost of $40,000 and a salvage value of $10,000. The asset has a three-year life. If depreciation in the third year amounted to $5,000, which depreciation method was used?

sum-of-the-years

If an asset is sold at a gain

the book value of the asset is less than the proceeds received from the sale.

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.

In accounting for compensated absences, the difference between vested rights and accumulated rights is that

vested rights carry a stipulated dollar amount that is owed to the employee; accumulated rights do not represent monetary compensation.