Financial Reporting and Analysis
An investor purchases a bond at a price above par value. Two years later, the investor sells the bond. The resulting capital gain or loss is measured by comparing the price at which the bond is sold to the: carrying value. original purchase price. original purchase price value plus the amortized amount of the premium.
A is correct. Capital gains (losses) arise if a bond is sold at a price above (below) its constant-yield price trajectory. A point on the trajectory represents the carrying value of the bond at that time. That is, the capital gain/loss is measured from the bond's carrying value, the point on the constant-yield price trajectory, and not from the original purchase price. The carrying value is the original purchase price plus the amortized amount of the discount if the bond is purchased at a price below par value. If the bond is purchased at a price above par value, the carrying value is the original purchase price minus (not plus) the amortized amount of the premium. The amortized amount for each year is the change in the price between two points on the trajectory.
The free exchange of currency across borders is most accurately classified as which type of geopolitical tool? Financial Economic National security
A is correct. The free exchange of currency across borders is a financial tool. Economic tools and financial tools can be very similar and, in many cases, share common characteristics. For the purpose of this exam, economic tools primarily relate to trade flows, such as nationalization and export restraints. On the other hand, financial tools primarily pertain to capital flows, including sanctions, capital controls, and restrictions on currency flows.
Wilfork Enterprises, a capital goods manufacturer that adheres to US GAAP, has decided to change its inventory valuation method from LIFO to FIFO. As a result of making this change, the company is most likely required to: document the impact of the change in supplementary footnote disclosures. implement the change on a prospective basis without retrospective adjustments. retrospectively restate financial information reported for periods before the change was implemented.
C) If you change inventory methods from LIFO to another method you must retroactively restate information while if you change to LIFO you don't have to retroactively change it.
An automobile manufacturer provides a defined-benefit pension plan to all of its employees. The company will most likely include pension costs attributable to its assembly line workers in which of the following categories on its income statement? Cost of goods sold Salaries and wages Administrative expenses
COGS A manufacturing firm will count pension expenses attributable to production workers (as well as their salaries and other forms of compensation) toward inventory. This amount appears on the income statement as part of cost of goods sold as sales are recognized. Expenses incurred as compensation for employees who are not directly involved in the production process will be included with salaries or other administrative expenses.
For a bond issued at a premium, using the effective interest rate method, the: carrying amount increases each year. amortization of the premium increases each year. premium is evenly amortized over the life of the bond.
B is correct. The amortization of the premium equals the interest payment minus the interest expense. The interest payment is constant and the interest expense decreases as the carrying amount decreases. As a result, the amortization of the premium increases each year.
IF a company is splitting off a segment in 2027 but announced it in 2026 what should they do? excluded from the company's 20X6 income statement. recorded as a separate line item in the company's 20X6 income statement. including in net income from the company's continuing operations in its 20X6 income statement with details of the pending split-off disclosed in the notes.
B) Under both IFRS and US GAAP, revenues from a business unit that will not impact a company's balance sheet in the future should be reported as income from discontinued operations in a separate line in the income statement.
Under US GAAP, which of the following would an auto manufacturer most likely classify as a financing activity on its statement of cash flows? The sale of a trading security The repurchase of common stock The payment of interest on a ten-year note
B) Financing activities include obtaining and repaying capital, like debt or equity. Thus, the repurchase of common stock (part of equity) would be considered a financing activity under US GAAP. Selling a trading security would be considered an operating activity, whereas selling a non-trading security would be treated as an investing activity. Under US GAAP, the cash paid for interest is included in operating cash flows. Note that interest payments may be classified as either operating or financing activities under IFRS.
A company borrows $4,000,000 to finance the construction of a long-lived asset. The principal is to be repaid in two years and interest will be paid every six months based on an annual rate of 6.0%. If the asset takes two years to prepare for use, the amount of interest that can be capitalized under IFRS is closest to: $240,000. $480,000. $502,035.
B) 480k. you would use simple interest. 4,000,000*0.06 *2
Which of the following statements is most accurate? Under IFRS, a deferred tax asset: must be classified as a current asset. must be classified as a noncurrent asset. may be classified as either a current asset or a noncurrent asset.
B) Under IFRS a deferred tax asset must be classified as a noncurrent asset while US GAAP it depends on the nature of the asset. Under U.S. GAAP, whether a deferred tax asset is classified as current or noncurrent depends on the nature of the underlying asset. For example, a deferred tax asset that was created from a current asset would also be classified as a current asset.
In a recession, companies are most likely to adjust their stock of physical capital by: selling it at fire sale prices. not maintaining equipment. quickly canceling orders for new construction equipment.
B) not maintaining equipment option 1 doesn't relate to physical capital so it wouldn't be the right option even though companies will sell their inventory for cheap. option 3 isn't likely since new orders are planned far in advance.
A company's current ratio is 1.20. All else equal, if the company were to reduce a short-term bank loan using cash, its current ratio would most likely: fall below 1.20. remain at 1.20. rise above 1.20.
C ) The current ratio is obtained by dividing a company's current assets by its current liabilities. In this example, imagine that current assets are initially $1,200 and current liabilities are $1,000, yielding the given current ratio of 1.20. If $100 of cash (a current asset) is used to reduce a short-term bank loan (a current liability), both values used to calculate the current ratio are reduced by the same amount. All else equal, the new current ratio is: 1100/900
The most likely costs included in both the cost of inventory and property, plant, and equipment are: selling costs. storage costs. delivery costs.
C is correct. Both the cost of inventory and property, plant, and equipment include delivery costs, or costs incurred in bringing them to the location for use or resale.
An example of a contra asset account is: depreciation expense. sales returns and allowances. allowance for doubtful accounts.
C is correct. A contra asset account is netted against (i.e., reduces) the balance of an asset account. The allowance for doubtful accounts reduces the balance of accounts receivable. Accumulated depreciation, not depreciation expense, is a contra asset account. Sales returns and allowances create a contra account that reduce sales, not an asset.
Under US GAAP, a lessee that has the option to purchase the asset at the end of the term and will likely do so is most likely: required to classify the lease as a finance lease. required to classify the lease as a sales-type lease. permitted to classify the lease as an operating lease if the term represents a substantial portion of the asset's useful life.
A) A lessee is required to treat an arrangement as a finance lease if it includes an option to purchase the underlying asset and it is reasonably certain that the lessee will do so. The requirement for lessees to use the finance lease classification also applies if the lease term covers a major portion of the asset's useful life. Under US GAAP, the sales-type lease classification is used by lessors, not lessees.
Aspects Group, which adheres to US GAAP, purchased equipment for $450,000. The company uses the straight-line depreciation method for financial accounting and depreciated the equipment by $50,000 annually. For tax purposes, the depreciation expense in the first year was $100,000. This difference will most likely produce a: deferred tax liability. deferred tax asset only. deferred tax asset and a valuation allowance.
A) Aspects Group has been permitted to record a greater depreciation expense for tax accounting purposes compared to the equivalent expense for financial reporting purposes. As a result, the company's taxable income will be less than its earnings before taxes on its income statement and its company's actual tax payment for the first year of owning the asset will less than the income tax expense that is calculated for accounting purposes. In order to account for the need to eventually eliminate this temporary difference, the company will create a deferred tax liability on its balance sheet. when you have to catch up with the amount you paid on the taxes that means it will be a liability since you have to pay that amount in the future.
Which of the following will most likely result in the creation of a deferred tax liability? Taxable temporary differences only Deductible temporary differences only Both taxable temporary differences and deductible temporary differences
A) Taxable temporary differences are created when either: The carrying amount of an asset exceeds its tax base The carrying amount of a liability is less than its tax base A liability, which is temporarily recorded on the company's balance sheet, must be settled in a future period. Deductible temporary differences require the creation of a deferred tax asset.
Which of the following statements is most likely correct? Trade payables are: a source of financing. considered to be an accrued expense. reported net of allowance for doubtful accounts.
A) Trade payables, or accounts payable, are recorded when a company has received goods or services for which it has yet to pay. The practice of suppliers allowing companies to delay cash payments is known as trade credit and it is used by companies as a source of financing. Accrued expenses are costs that have already been recorded on a company's income statement, but have yet to be paid. Trade payables have yet to be recognized on the income statement. Trade receivables, not trade payables, are reported net of allowance for doubtful accounts.
Which of the following categories most likely ranks highest on the quality spectrum of financial reporting? GAAP-compliant with low earnings quality GAAP-compliant with earnings management GAAP-compliant with biased accounting choices
A) A report that is GAAP-compliant but with low earnings quality is of the highest reporting quality of the three, followed by GAAP-compliant reports reflecting biased accounting choices, and then GAAP-compliant reports reflecting deliberate actions to influence reported earnings.
A trend analysis of a company's financial statements with values stated in absolute currency terms is most likely to be effective: at providing insights about a mature company. at identifying structural changes that a company has experienced. during periods of structural change in the macroeconomic environment.
A) Trend analysis is most valuable for analyzing mature companies and during periods of relative stability in macroeconomic conditions and the competitive landscape. It is difficult to identify any structural changes that a company has experienced using values expressed in absolute currency terms. A horizontal common-size analysis is more likely to be effective for this purpose.
Oil Exploration LLC paid $45,000 in printing, legal fees, commissions, and other costs associated with its recent bond issue. It is most likely to record these costs on its financial statements as: an asset under US GAAP and reduction of the carrying value of the debt under IFRS. a liability under US GAAP and reduction of the carrying value of the debt under IFRS. a cash outflow from investing activities under both US GAAP and IFRS.
A) A is correct. Under US GAAP, expenses incurred when issuing bonds are generally recorded as an asset and amortised to the related expense (legal, etc.) over the life of the bonds. Under IFRS, they are included in the measurement of the liability. The related cash flows are financing activities.
Duomo Corporation, which adheres to US GAAP, enters into a three-year operating lease of an asset valued at €178,400. The annual lease payments are €30,400. If the company uses the straight-line method of cost allocation, which of the following statements is most likely accurate? No annual amortization expense will show up on the income statement An annual amortization expense will show up on the income statement as €17,840 An annual amortization expense will show up on the income statement as €30,400
A) Under US GAAP, no amortization expense will be recorded on the income statement for an operating lease. Instead, lessees account for operating leases by recognizing a single lease expense based on a straight-line allocation of the cost over the term of the lease. There is no separate amortization component of the lease expense for an operating lease.
For financial assets classified as available for sale, how are unrealized gains and losses reflected in shareholders' equity? They are not recognized. They flow through retained earnings. They are a component of accumulated other comprehensive income.
AOCI is a component of Shareholder's equity
Compared with a finance lease, an operating lease: is similar to renting an asset. is equivalent to the purchase of an asset. term is for the majority of the economic life of the leased asset.
An operating lease is similar to renting an asset while a finance lease is equivalent to the purchase of an asset. After inception of a finance lease you would record depreciation on the right-of-use asset, while operating is a single lease expense with straight line allocation of the cost of the lease of the term.
An operating segment is least likely characterized as: a new line of business yet to earn revenue. a terminated line of business no longer in operation. an established line of business that accounts for less than 10% of a company's total revenue.
An operating segment has 3 characteristics: Engages in operations which produce revenue and generate expenses (including start-ups not yet earning revenue) Results are regularly reviewed by the company Discrete financial information is available Operating segments that account for less than 10% of a company's asset's, sales, or net income may be reported among "other operating segments." A terminated line of business no longer in operations is no longer engaging in operations and would be least likely to be considered a segment.
Which of the following reports is least likely to be filed with the US SEC? Annual report Form 10-K Proxy statement
Annual report is not required by SEC
Under US GAAP, when assets are acquired in a business combination, goodwill most likely arises from: contractual or legal rights.x assets that can be separated from the acquired company. assets that are neither tangible nor identifiable intangible assets.
C is correct. Under both International Financial Reporting Standards (IFRS) and US GAAP, if an item is acquired in a business combination and cannot be recognized as a tangible asset or identifiable intangible asset, it is recognized as goodwill. Under US GAAP, assets arising from contractual or legal rights and assets that can be separated from the acquired company are recognized separately from goodwill.
Inventory cost is least likely to include: production-related storage costs. costs incurred as a result of normal waste of materials. transportation costs of shipping inventory to customers.
C is correct. Transportation costs incurred to ship inventory to customers are an expense and may not be capitalized in inventory. (Transportation costs incurred to bring inventory to the business location can be capitalized in inventory.) Storage costs required as part of production, as well as costs incurred as a result of normal waste of materials, can be capitalized in inventory. (Costs incurred as a result of abnormal waste must be expensed.)
Proxy statements are most likely: required to be filed with regulators at least annually. reported in a supplemental schedule to a company's audited financial statements. distributed to provide shareholders with information about matters to be voted on at a company's annual meeting.
C)
Galambos Corporation had an average receivables collection period of 19 days in 2003. Galambos has stated that it wants to decrease its collection period in 2004 to match the industry average of 15 days. Credit sales in 2003 were $300 million, and analysts expect credit sales to increase to $400 million in 2004. To achieve the company's goal of decreasing the collection period, the change in the average accounts receivable balance from 2003 to 2004 that must occur is closest to: -$420,000. $420,000. $836,000.
C) C is correct. Accounts receivable turnover is equal to 365/19 (collection period in days) = 19.2 for 2003 and needs to equal 365/15 = 24.3 in 2004 for Galambos to meet its goal. Sales/turnover equals the accounts receivable balance. For 2003, $300,000,000/19.2 = $15,625,000, and for 2004, $400,000,000/24.3 = $16,460,905. The difference of $835,905 is the increase in receivables needed for Galambos to achieve its goal.
Which of the following is most accurately classified as a contra account that is used to offset a company's revenues? Unearned revenue Allowance for bad debts Sales returns and allowances
Contra accounts are used to offset the balance of an associated account. Sales returns and allowances is a contra account that offsets revenues in cases when, for example, cash refunds are provided or unsatisfactory items are sold at a discount from their regular price. Unearned revenue is an accrual account that is used to record a liability in cases when cash has been received before revenues can be recognized as earned. Allowance for bad debts is a contra account that is used to reduce the net book value of a company's receivables by the amount that is estimated to be uncollectible.
Berkley Manufacturing collected $2.3 million in cash from a tenant renting one of its unused facilities. The company recognizes this as deferred revenue for accounting purposes and pays taxes based on the cash payment. This will most likely result in Berkley recording: a deferred tax asset. a deferred tax liability. neither a deferred tax asset nor a deferred tax liability.
DTA Because the rent received in advance is taxed on a cash basis, Berkley must include this in taxable income for the financial year received. For accounting purposes, the payment will be recorded as a deferred revenue liability on the company's balance sheet and will not appear on the income statement until the period in which it is earned. Since the entire $2.3 million is taxable, the tax base is $0. This temporary difference of negative $2.3 million results in a deferred tax asset.
Which of the following is most likely required for a deferred tax asset to be recognized with regard to a subsidiary of a parent company? There is a probability the temporary difference will not reverse in the future There are sufficient taxable profits against which the temporary difference can be used The parent company is able to control the timing of the reversal of a temporary difference
Deferred tax assets related to subsidiaries, branches, associates, and interests in joint ventures will only be recognized if both of the following conditions are met: 1. The temporary difference will reverse in the future 2. There are sufficient taxable profits against which the temporary difference can be used Deferred tax liabilities attributable to subsidiaries will not be recognized if either of the following conditions is met: 1. It is probable that the difference will not be reversed in the future 2. The parent is in a position to control the timing of the reversal of the temporary difference
An analyst gathers the following information from a company's income statement: Revenue: £441,000 Cost of goods sold: £208,000 Selling, general, and administrative expenses: £91,000 Depreciation: £32,000 Interest expense: £24,000 Tax expense: £26,000 The company's operating profit is closest to: £60,000. £110,000. £142,000.
Operating profit is gross profit (revenue minus cost of goods sold) less other operating expenses, which include selling, general, and administrative expenses, and depreciation. In this example, the company's operating profit is: £441,000 − £208,000 − £91,000 − £32,000 = £110,000
An analyst covering a company that adheres to US GAAP would most likely find its pension expense reported: in other comprehensive income. in the notes to the financial statements. as a separate line on the income statement.
Pension costs attributable to employees who are directly involved in the production process are included in cost of goods sold. Benefits earned by employees who are not directly involved in production are reported as part of general and administrative expenses. A company's actual pension expense can only be found in the disclosures that appear in the notes to the financial statements. production process = cogs employees not producing = SGA
A conversion of a face value $1 million convertible bond for $1 million of common stock would most likely be: reported as a $1 million investing cash inflow and outflow. reported as a $1 million financing cash outflow and inflow. reported as supplementary information to the cash flow statement.
Reported as supplementary information to the CF statement since conversion is a Non-cash transactions, if significant, are reported as supplementary information, not in the investing or financing sections of the cash flow statement.
Which of the following is the least likely to be listed among the limitations of ratio analysis? Companies may use different accounting methods Companies may report results in different currencies Companies may have operations in different industries
The ability to easily compare companies that issue financial reports in different currencies is an advantage of ratio analysis, not a disadvantage. Among the limitations of ratio analysis is that companies may have operations in a range of industries or sectors, making comparisons to other companies more difficult. Additionally, to the extent that companies adhere to different accounting standards and use different accounting policies, ratios may not be comparable.
An analyst who suspects that a company is using aggressive accrual accounting policies can most likely confirm this suspicion by determining if the company's: inventory turnover ratio is declining. interest coverage ratio has fallen below 2.0. ratio of cash flow from operations to net income is persistently below 1.0.
The cash flow from operations to net income ratio will most likely provide good evidence. A ratio of cash flow from operations to net income that is consistently below 1.0 is an indication that a company is using aggressive accrual accounting policies that recognize revenue prematurely or shift the recognition of expenses into future periods. A declining inventory turnover ratio is most likely to indicate that a company has an obsolescence problem. The interest coverage ratio is unlikely to provide any direct information about a company's accrual accounting policies.
A new company begins operating with $2 million in long-term debt and $2 million in current liabilities, which include $1 million of short-term interest-bearing debt. These funds are used to finance the company's $12 million in assets, with the remaining capital being supplied by common stockholders. The company's debt-to-capital ratio is closest to: 0.25. 0.27. 0.33.
The company has $4 million of liabilities: Non-interest-bearing current liabilities: $1 million Interest-bearing short-term debt: $1 million Long-term debt: $2 million With $12 million in assets, the company must have $8 million of common equity on its balance sheet. With $3 million of interest-bearing debt, the company's debt-to-capital ratio is: $3 million /$3 million+$8 million=0.27
A country's sustainable growth rate is most likely measured by the rate of increase in its: real GDP. potential GDP. per capita GDP.
The sustainable growth rate is the rate at which an economy can increase its productive capacity. This capacity is measured by potential GDP.
During a conversation, the following comment is overheard: "Differences between accounting profit and taxable income can occur when expenses are recognized in one period for tax reporting and another period for financial reporting. Such differences can also arise when adjustments are made to financial data from prior periods." Is this statement most likely correct?
This statement is correct. Differences between accounting profit and taxable income can occur when certain expenses are recorded in one period for tax purposes and another period for financial reporting purposes. These differences can also arise when adjustments made to financial data from previous years are not recognized equally for accounting and tax purposes.
Fractional reserve banking most accurately refers to the process: by which the banking system creates money. of converting narrow money into broad money. by which central banks achieve money neutrality.
Under fractional reserve banking, banks assume that not all the account holders will want their money all at the same time. This allows banks to create money by lending out a portion of their deposits. The banks then make a spread on the difference between the amount of interest they are paying and the interest they are charging. Banks are required by authorities to keep a certain percentage of deposits on hand. Money neutrality refers to the thesis that an increase in money supply causes price increases accompanied by no change in real output or employment. Narrow money is typically defined as including all notes and coins in circulation as well as highly-liquid deposits such as demand deposits at commercial banks. Broad money includes all forms of narrow money plus less liquid assets such as money market funds.
Innovative Inventions, Inc. needs to raise €10 million. If the company chooses to issue zero-coupon bonds, its debt-to-equity ratio will most likely: rise as the maturity date approaches. decline as the maturity date approaches. remain constant throughout the life of the bond.
a. A is correct. The value of the liability for zero-coupon bonds increases as the discount is amortised over time. Furthermore, the amortised interest will reduce earnings at an increasing rate over time as the value of the liability increases. Higher relative debt and lower relative equity (through retained earnings) will cause the debt-to-equity ratio to increase as the zero-coupon bonds approach maturity. Since zero-coupon bonds are always issued at a discount it will rise overtime
Assuming no previously recorded losses, upward revaluation of an asset is most likely to: decrease a company's net income. increase a company's reported leverage. reduce the book value of shareholders' equity.
a. An upward revaluation of an asset typically reduces a company's net income due to the associated increase in depreciation. Any increase that does not reverse a previously reported loss is not recorded on the income statement, but rather appears as equity in a revaluation surplus account. This increase in equity will reduce reported leverage (defined as the ratio of total assets to shareholders' equity). Video Solution
In which of the following market structures are sellers least likely to use advertising to increase sales? Oligopoly Monopoly Perfect competition
c) In perfectly competitive markets, sellers have no pricing power and non-price competition (e.g., advertising) is absent. Advertising is used by sellers in both oligopolies and monopolies.
An analyst covering the alcoholic beverage industry produces the following summary of the three dominant firms: FirmABCMarket share35%31%34%Operating costs/sales22%24%21% Based on the information presented above, the analyst concludes that the size distribution of these firms as well as their cost structure both indicate that they could successfully collude as a cartel. This conclusion is most likely: correct. incorrect with respect to cost structure. incorrect with respect to the size distribution of firms in this industry.
c. Incorrect with the size distribution A cartel is less likely to successfully execute a collusion strategy if, as in this example, the firms have similar market shares. In such circumstances, the incentive to compete is greater than would be the case if one firm's market share was significantly larger than the market shares of other firms in the industry. The fact that all three firms in this example have similar cost structures does suggest that successful collusion is possible. Collusion is less likely between firms with significantly different cost structures.
Based on typical labor utilization patterns across the business cycle, productivity (output per hours worked) is most likely to be highest: at the peak of a boom. into a maturing expansion. at the bottom of a recession.
c. at the bottom of a recession C is correct. At the end of a recession, firms will run "lean production" to generate maximum output with the fewest number of workers. In the formula of labor productivity, if you use nominal GDP, it includes the effect of inflation. This could distort the measure of productivity. For instance, if nominal GDP increases solely due to price inflation and not due to an actual increase in the quantity of goods and services produced, using nominal GDP in the equation could lead to a false sense of improved productivity. Real GDP, on the other hand, removes the inflation component and gives you a clearer picture of the actual increase in production output.
Compared to using the weighted average cost method to account for inventory, during a period in which prices are generally rising, the current ratio of a company using the FIFO method would most likely be: lower. higher. dependent upon the interaction with accounts payable.
higher B is correct. In a rising price environment, inventory balances will be higher for the company using the FIFO method. Accounts payable are based on amounts due to suppliers, not the amounts accrued based on inventory accounting.
Compared to using the weighted average cost method to account for inventory, during a period in which prices are generally rising, the current ratio of a company using the FIFO method would most likely be: lower. higher. dependent upon the interaction with accounts payable.
higher B is correct. In a rising price environment, inventory balances will be higher for the company using the FIFO method. Accounts payable are based on amounts due to suppliers, not the amounts accrued based on inventory accounting.
A company previously expensed the incremental costs of obtaining a contract. All else being equal, adopting the May 2014 IASB and FASB converged accounting standards on revenue recognition makes the company's profitability initially appear: lower. unchanged. higher.
higher C is correct. Under the converged accounting standards, the incremental costs of obtaining a contract and certain costs incurred to fulfill a contract must be capitalized. If a company expensed these incremental costs in the years prior to adopting the converged standards, all else being equal, its profitability will appear higher under the converged standards.
A national government responds to a severe recession by funding numerous infrastructure projects using deficit spending. Which school of economic thought is most consistent with such action? Keynesian Monetarist Neoclassical
keynesian fiscal policy A is correct. Keynesian economics is based on government intervention in the form of fiscal policy. The national government responds to the recession by using deficit spending to fund infrastructure projects.
For a lessor, the leased asset appears on the balance sheet and continues to be depreciated when the lease is classified as: a finance lease. a sales-type lease. an operating lease.
operating lease C is correct. When a lease is classified as an operating lease, the underlying asset remains on the lessor's balance sheet. The lessor will record a depreciation expense that reduces the asset's value over time.
An analyst will most likely be able to detect manipulations to accounts payable with the intention to create the appearance of improved cash flow from operations by examining the: expenses section of the income statement. operations section of the cash flow statement current liabilities section of the balance sheet.
operations section of the cash flow statement has the breakout. Current liabilities will have the change but you won't be able to see what makes up that change.
In early 2018 Sanborn Company must pay the tax authority €37,000 on the income it earned in 2017. This amount was recorded on the company's 31 December 2017 financial statements as: taxes payable. income tax expense. a deferred tax liability.
taxes payable A is correct. The taxes a company must pay in the immediate future are taxes payable.
Under the International Accounting Standards Board's (IASB's) Conceptual Framework, one of the qualitative characteristics of useful financial information is that different knowledgeable users would agree that the information is a faithful representation of the economic events that it is intended to represent. This characteristic is best described as: understandability. verifiability. comparability.
verifiability - B is correct. Under the IASB's Conceptual Framework, verifiability means that different knowledgeable and independent users would agree that the information presented faithfully represents the economic events that it is intended to represent. A is incorrect. Understandability is the clear and concise presentation of information. C is incorrect. Comparability allows users to identify and understand similarities and differences of items.
Which of the following is true regarding a candlestick chart? A dark body indicates the close price is higher than the open price. A candlestick with no lower wick and a white body indicates the stock closed at the low price. A candlestick with no upper wick and a white body indicates the stock closed at the high price of the day.
white body close price is higher than open dark body close price is lower than the open no upper wick then the high is the close price if the body is white (if dark then the open price) if no lower wick and the candle is white then the low price coincides with the open price. (or close if the candle is dark)
The role of the International Organization of Securities Commissions (IOSCO) is best described as: promoting cross-border cooperation and uniformity in securities regulation. enforcing financial reporting requirements for entities participating in capital markets. promoting the use of International Financial Reporting Standards (IFRS) and the convergence of national accounting standards.
A is correct. IOSCO provides a forum for regulators from different jurisdictions to work together toward fair, efficient, and transparent markets, promoting cross-border cooperation and uniformity in securities regulation. B is incorrect. This is the role of regulatory authorities such as the Securities Exchange Commission. IOSCO is not a regulator and as such has no authority to regulate. C is incorrect. This is the role of the IFRS Foundation.
An analyst writes in an economic report that the current phase of the business cycle is characterized by accelerating inflationary pressures and borrowing by companies. The analyst is most likely referring to the: peak of the business cycle. contraction phase of the business cycle. early expansion phase of the business cycle.
A is correct. Accelerating inflation and rapidly expanding capital expenditures typically characterize the peak of the business cycle. During such times, many businesses finance their capital expenditures with debt to expand their production capacity.
When aggregate real personal income, industrial output, and the S&P 500 Index all increase in a given period, it is most accurate to conclude that a cyclical upturn is: occurring. about to end. about to begin.
A is correct. Aggregate real personal income and industrial output are coincident indicators, whereas the S&P 500 is a leading indicator. An increase in aggregate personal income and industrial output signals that an expansion is occurring, whereas an increase in the S&P 500 signals that an expansion will occur or is expected to continue. Taken together, these statistics indicate that a cyclical upturn is occurring.
The initial measurement of goodwill is most likely affected by: an acquisition's purchase price. the acquired company's book value. the fair value of the acquirer's assets and liabilities.
A is correct. Initially, goodwill is measured as the difference between the purchase price paid for an acquisition and the fair value of the acquired, not acquiring, company's net assets (identifiable assets less liabilities).
A US company expanding critical spare part inventories for local customers made at its existing Canadian facility after a supply chain disruption is most likely using the coping tactic of: reshoring the essentials. re-globalizing production. doubling down on key markets.
A is correct. The COVID-19 pandemic has highlighted the need for certain essential supply chains to be rebuilt domestically for emergency situations, with availability of critical spare parts being an analogy. The close integration of the US and Canadian economies through the revised NAFTA agreement effectively makes expanded production at an existing Canadian factory an example of reducing manufacturing risk by relocating to home countries via reshoring. B is incorrect because instead of reducing manufacturing risk by duplicating or fortifying its supply chain, the company is simply continuing to use its existing capacity more intensively. C is incorrect because although the production is intended to better supply its home market, there is no evidence that the company is expanding its presence in the US market or shifting its focus to the exclusion of available opportunities elsewhere. Video Solution
The proposition that the real interest rate is relatively stable is most closely associated with: the Fisher effect. money neutrality. the quantity theory of money.
A is correct. The Fisher effect is based on the idea that the real interest rate is relatively stable. Changes in the nominal interest rate result from changes in expected inflation.
MLC Engineering issues financial statements in accordance with IFRS and uses the revaluation model for its machinery. The company purchased a machine at the end of 20X2 for $25,000. The machine's fair value was $27,000 and $22,000 at the end of 20X3 and 20X4, respectively. The change in the value of the revaluation surplus account attributable to this machine over the course of 20X4 is closest to: $2,000. $3,000. $5,000.
A) 2000 At the end of 20X3, the company would record a gain of $2,000 as other comprehensive income to represent the increase in fair value ($27,000 at the end of this period) above historical cost ($25,000). This $2,000 gain will be accumulated on the balance sheet, specifically, the revaluation surplus account would increase by $2,000. At the end of 20X4, the equipment's fair value has fallen to $22,000, which is $5,000 below the carrying value set at the beginning of this period. This $5,000 difference would be accounted for by reducing the revaluation surplus account by $2,000 (the amount of the gain recognized for 20X3) and reporting the remaining $3,000 as a loss on the income statement.
A company purchased equipment worth $1,000,000 at the beginning of the year. The associated depreciation expense for the year was $200,000 for financial reporting purposes and $300,000 for income tax purposes. All else equal, if the company reported an operating profit of $500,000 and the tax rate is 40%, the change in the company's deferred tax liability attributable to this asset is closest to: $40,000. $60,000. $160,000.
A) 40,000 After initially being purchases for $1,000,000, the asset would be carried at $800,000 (net of the $200,000 depreciation expense) on the company's balance sheet, but its tax base will be only $700,000 (net of the $300,000 depreciation expense). The change in the company's deferred tax liability is calculated as follows: ($800,000−$700,000)×40%=$40,000
Along with relevance, the most critical qualitative characteristic of financial information is: faithful representation. comparability. understandability.
A) A is correct. According to the conceptual frameworks adopted under both International Financial Reporting Standards and US GAAP, faithful representation and relevance are the two fundamental qualitative characteristics that make financial information useful.
Monetarists favor a limited role for the government because they argue: government policy responses may lag. firms take time to adjust to systemic shocks to the economy. resource use is efficient with marginal revenue and cost equal.
A) A is correct. Monetarists caution that policy effects can occur long after the need for which they were implemented is no longer an issue.
Which of the following items would least likely impact a company's total comprehensive income? Dividend payments Interest payments on debt Unrealized gains on derivatives
A) Dividend payments. since they're transactions with owners in their capacity as owners. Interest payments reduce net income, which is one of the two components of total comprehensive income. Unrealized gains on derivatives are included in other comprehensive income, which is the other component of total comprehensive income.
A furniture retailer purchased $1 million worth of furniture in November on credit from a wholesaler. The resulting payable was settled in December, and the company sold the furniture in January for $3 million in cash. In the company's financial statements for January, the impact of the $1 million inventory purchase will most likely be observed on: the income statement only. the statement of cash flows only. both the income statement and the statement of cash flows.
A) income statment only When the furniture was acquired in November, the retailer would have recorded the $1 million inventory and the $1 million payable on its balance sheet. Settling the payable in December would reduce both payables and cash. No expense would have been recorded on the income statement until the furniture was sold to customers in January. At that point, the $1 million in inventory would be recorded on the income statement as part of cost of goods sold. Because the payable was settled in December, the $1 million inventory purchase would have no impact on January's statement of cash flows.
Accounting standards boards should most likely maintain their: commitment to confidentiality. responsibility to provide oversight of financial regulators. operational independence by not seeking input from entities that are likely to be affected by their decisions.
A. An accounting standards board should be committed to the highest levels of professional ethics, which includes maintaining confidentiality whenever necessary. Accounting standards boards do not oversee financial regulators. Rather, standard setters operate under the oversight of regulators. Although a standard-setting board should be immune from external pressures, it would be inappropriate to refrain from seeking any input from affected parties. An accounting standards board should consult with stakeholders and consider their input while making decisions that are consistent with its stated objective and framework.q
To be authoritative, an accounting standards board should most likely: be responsible for enforcing its standards. issue standards that are recognized by regulatory authorities. ensure that it has adequate resources by operating as a for-profit organization.
B ) Accounting standards boards are typically independent, private organizations. For these entities to have any authority, the standards that they establish must be recognized and enforced by financial regulators. It is not necessary, and likely not desirable, for accounting standards boards to be responsible for enforcement. Although standard-setting bodies should ensure that they have sufficient resources, they should operate as non-profit organizations. Among other potential problems, it would be difficult, if not impossible, for an accounting standards board that operated as a for-profit entity to be perceived as immune from external pressure or self-interest.
Under US GAAP, a company's comprehensive income is reported as: net income less common stock dividends. the change in equity during a period from transactions and other events and circumstances from non-owner sources. revenue less expense items that are excluded from the net income calculation.
B) B is correct. Comprehensive income includes all changes in equity during a period except those resulting from investments by owners and distributions to owners, which means comprehensive income is the sum of all transactions and other events and circumstances from non-owners. A is incorrect because common stock dividends are distributions to owners and, as such, they result in a change in equity and therefore are not a subtraction in determining comprehensive income. C is incorrect because this choice is describing other comprehensive income, but comprehensive income is the combination of net income and other comprehensive income.
With respect to the indifference curve, which of the following is least accurate? For risk-averse investors, the indifference curve that lies further to the north-west has a higher level of utility The indifference curve of a more risk-seeking investor is more upward sloping than that of a less risk-seeking investor The slope of the indifference curve represents the additional return required by the investor to take on an additional unit of risk
B) Indifference curves show the trade-off between risk and return. Risk-neutral investors have flat indifference curves, meaning that no additional return is required as compensation for taking additional risk. As investors become more risk-seeking, their indifference curves become more downward sloping. For risk-averse investors, indifference curves are upward sloping. Those that lay further to the north-west represent higher levels of utility.
A retailer is considering the following options for recording credit losses on customer receivables: Option 1: Recognize the exact amount of losses as accounts are deemed uncollectible Option 2: Estimate collection percentages and recognize the rest as a loss at the time of sale Which of these options is most likely consistent with generally accepted accounting principles? Option 1 only Option 2 only Both Option 1 and Option 2
B) Option 1 (the direct write-off method) is inconsistent with generally accepted accounting principles because it does not conform to the matching principle, which states that expenses should be recognized at the same time as their corresponding revenues. Option 2 conforms to the matching principle.
Which of the following is least likely to be classified as a factor that increases opportunities for issuing low-quality financial reports? Poor internal controls Pressure to meet earnings targets Minimal consequences for inappropriate accounting choices
B) Pressure to meet targets could be a motivation for issuing low-quality reports, but does not necessarily create the opportunity for this to occur. By contrast, poor internal controls and minimal consequences create opportunities to issue low-quality reports.
Subzero Corporation is currently involved in a legal dispute with one of its customers. The company's legal counsel has advised that a potential loss from the dispute is probable but the amount of loss cannot be reasonably estimated. Subzero failed to adequately disclose the lawsuit in its financial statement notes. Subzero's independent auditor will most likely issue: a disclaimer of opinion. a qualified audit opinion. an unqualified audit opinion.
B) Subzero will most likely receive a qualified opinion. A qualified opinion contains an exception to the standard opinion when there is a lack of conformity with applicable accounting standards, inadequate disclosure, or an audit scope limitation.
A manufacturing firm purchases raw materials at a price of $15 per unit. The company then spends $5 per unit to transport these materials to its production facility and an additional $5 per unit to store these inventories during the production process. Labor costs are $10 per unit and production overhead costs are $1 million. If the company produces 120,000 units and attributes the loss of 1 percent of these units to abnormal waste, the amount included in inventory is closest to: $5,148,000. $5,158,000 $5,200,000.
B) To prepare each unit for sale, the firm incurs costs of $15 and $5 to purchase and transport raw materials, respectively, as well as $10 for labor and $5 for storage during production. For 120,000 units, these costs are: ($15+$5+$10+$5)×120,000=$4,200,000 One percent of these units are scrapped and treated as abnormal waste. The amount that can be included in inventory is: $4,200,000×(1−1%)=$4,158,000 Inventory costs also include the full amount of production overhead: $4,158,000+$1,000,000=$5,158,000 Note that the variable production costs incurred to produce the units that were treated as abnormal waste would be expensed immediately. Typically waste isn't included in the calculation but in this case the waste would be attributable to manufacturing and potentially defective units.
Zimt AG presents its financial statements in accordance with US GAAP. In Year 3, Zimt discloses a valuation allowance of $1,101 against total deferred tax assets of $19,201. In Year 2, Zimt disclosed a valuation allowance of $1,325 against total deferred tax assets of $17,325. The change in the valuation allowance most likely indicates that Zimt's: deferred tax liabilities were reduced in Year 3. expectations of future earning power has increased. expectations of future earning power has de
B) B is correct. The valuation allowance is taken against deferred tax assets to represent uncertainty that future taxable income will be sufficient to fully utilize the assets. By decreasing the allowance, Zimt is signaling greater likelihood that future earnings will be offset by the deferred tax asset.
An analyst gathers the following information from a company's income statement: Revenue: £441,000 Cost of goods sold: £208,000 Selling, general, and administrative expenses: £91,000 Depreciation: £32,000 Interest expense: £24,000 Tax expense: £26,000 The company's operating profit is closest to: £60,000. £110,000. £142,000.
B) R - cogs - SGA - Depreciation
Which of the following statements is most accurate? Non-GAAP earnings measures: do not relate directly to financial statements. are being reported with increasing frequency. are making it easier to compare companies as more countries adopt IFRS.
B) The use of non-GAAP earnings measures is becoming increasingly common, as companies attempt to present financial information that is more flattering than measures that conform to the requirements prescribed by relevant accounting standards (e.g., IFRS, US GAAP). Because they are not consistent with accounting standards, non-GAAP earnings measures make it more difficult to compare companies. Unlike non-GAAP operating metrics, non-GAAP earnings measures do relate directly to data presented in financial statements.
Since it was founded 50 years ago, XYZ Corp. has not had to write down its inventories, nor has the company ever pledged its inventories as security for any of its liabilities. In its financial statements for the most recent year, the company disclosed its cost of goods sold (COGS), the total carrying amount of its inventories at fair value less cost to sell, as well as its chosen inventory valuation method. XYZ Corp. has most likely: met the disclosure requirements under IFRS. disclosed more information than required by IFRS. failed to meet the disclosure requirements under IFRS.
C) International Financial Reporting Standards require companies to disclose the following information: Which inventory valuation method has been used Amount of inventories recognized as an expense (COGS) Carrying amount of inventory at carried fair value less selling costs Total carrying amount of inventories as well as the carrying amount in classifications (e.g., raw materials, work in progress) Additional disclosures are required regarding write-downs and any inventories that have been pledged as security for liabilities In this example, XYZ Corp. has not met the requirement to report separate amounts for different categories of inventory.
Which of the following is most likely to be classified as a contra account on a company's balance sheet? Bad debt expense Unearned revenue Accumulated depreciation
C) A contra account is an account that is used to offset or deducted from another account. Examples of this include allowance for bad debts (offset to accounts receivable), accumulated depreciation (offset to property, plant, and equipment), and sales returns and allowances (offset to sales). Unearned revenue is a liability, while bad debt expense is an income statement item.
Which of these is likely lowest on a country's hierarchy of interests? Tariff harmonization Military determination Cultural program development
C) C is correct. Cultural program development is likely lowest on a country's hierarchy of interests. Military determination (B) is often a primary source of national security and key to a country's national interest. Tariff harmonization (A) may improve economic activity and improve cooperation. Cultural programs are important and influential but likely lower priority compared to A and B.
Which of the following is most likely to be classified as a contra account on a company's balance sheet? Bad debt expense Unearned revenue Accumulated depreciation
C) Bad debt expense is a contra account on the income statement. Unearned revenue is a liability account. A contra account is an account that is used to offset or deducted from another account. Examples of this include allowance for bad debts (offset to accounts receivable), accumulated depreciation (offset to property, plant, and equipment), and sales returns and allowances (offset to sales).
Which costs incurred with the purchase of property and equipment are expensed? Delivery charges Installation and testing Training required to use the property and equipment
C) C is correct. When property and equipment are purchased, the assets are recorded on the balance sheet at cost. Costs for the assets include all expenditures required to prepare the assets for their intended use. Any other costs are expensed. Costs to train staff for using the machine are not required to prepare the property and equipment for their intended use, and these costs are expensed.
The components of the nominal interest rate are most accurately described as: a real required return and compensation for expected inflation only. a real required return and a premium for uncertainty about future economic conditions such as real growth and inflation. a real required return, compensation for expected inflation, and a risk premium for uncertainty about future values of economic variables.
C) The components of the nominal interest rate are: a required real return compensation for expected inflation a risk premium to compensate investors for uncertainty about the future values of economic variables such as real growth and inflation.
Beschlund Industries, which adheres to IFRS, is currently carrying inventory at its historical cost of €50,000. If the company determines that inventory's net realizable value is €45,000, the €5,000 loss in value: must be included as part of the cost of goods sold. must be reported separately from cost of goods sold. may be included as part of cost of goods sold or reported separately.
C) Under IFRS, inventory must be written down if its net realizable value is determined to be less than historical cost. The resulting loss in value may be reported as part of cost of goods sold or in a separate line on the income statement.
Which of the following would most likely be considered a financing activity on a cash flow statement under US GAAP? Receipt of dividends Payment of interest on long-term debt Principal repayments on long-term debt
C) Under US GAAP, repaying principal on long-term debt is considered a financing activity, while the payment of interest on this debt is an operating activity. Receipt of dividends is also an operating activity under US GAAP.
A company is most likely to: use a fair value model for some investment property and a cost model for other investment property. change from the fair value model when transactions on comparable properties become less frequent. change from the fair value model when the company transfers investment property to property, plant, and equipment.
C) C is correct. A company will change from the fair value model to either the cost model or revaluation model when the company transfers investment property to property, plant, and equipment.
Income tax expense reported on a company's income statement equals taxes payable, plus the net increase in: deferred tax assets and deferred tax liabilities. deferred tax assets, less the net increase in deferred tax liabilities. deferred tax liabilities, less the net increase in deferred tax assets.
C) DTL are higher reported tax expenses relative to taxes paid. lower reported tax expenses relative to taxes paid increases the DTA.
When both the timing and amount of tax payments are uncertain, analysts should treat deferred tax liabilities as: equity. liabilities. neither liabilities nor equity.
C) neither C is correct. The deferred tax liability should be excluded from both debt and equity when both the amounts and timing of tax payments resulting from the reversals of temporary differences are uncertain.
Income tax expense reported on a company's income statement equals taxes payable, plus the net increase in: deferred tax assets and deferred tax liabilities. deferred tax assets, less the net increase in deferred tax liabilities. deferred tax liabilities, less the net increase in deferred tax assets.
C) since DTL represents a higher reported tax expense than what was actually paid. Where a deferred tax asset is created when the reported tax amount is lower than what was actually paid.
A company has reported a significant deferred tax liability on its balance sheet. An analyst who expects the company to report negative net income for the foreseeable future will most likely treat the deferred tax liability as which of the following when calculating its debt-to-equity ratio? Debt Equity An asset
Equity Deferred tax liabilities are temporary accounts created due to differences between the tax obligations determined for financial reporting purposes and actual taxes paid. It is expected that companies will eventually eliminate these temporary accounts as they pay taxes on future reported net income. However, when a company is not expected to be profitable, there is no expectation of future tax payments and therefore the value of its deferred tax liability can be treated as equity for the purpose of calculating its debt-to-equity ratio.
A company has reported a significant deferred tax liability on its balance sheet. An analyst who expects the company to report negative net income for the foreseeable future will most likely treat the deferred tax liability as which of the following when calculating its debt-to-equity ratio? Debt Equity An asset
Equity Deferred tax liabilities are temporary accounts created due to differences between the tax obligations determined for financial reporting purposes and actual taxes paid. It is expected that companies will eventually eliminate these temporary accounts as they pay taxes on future reported net income. However, when a company is not expected to be profitable, there is no expectation of future tax payments and therefore the value of its deferred tax liability can be treated as equity for the purpose of calculating its debt-to-equity ratio.
IASB's 2010 Conceptual Framework Enhancing characteristics versus fundamental characteristics: Relevance Faithful representation Comparability Verifiability Timeliness Understandability
Fundamental - relevane and faithful representation Enhancing - comparability, verifiability, timeliness, understandability.
Which of the following statements is most accurate? IFRS permit the revaluation model to be used for tangible assets, but not for intangible assets If the revaluation model is chosen for an asset class under IFRS, this model must be applied to all assets within that asset class If a company chooses to use the revaluation model for one asset class, IFRS require the use of this model for all of its asset classes
IFRS allow companies to use the cost model for certain asset classes and the revaluation model for others - including intangible assets for which an active market exists. However, if a company does choose to use the revaluation model for an asset class, this model must be used for all assets within that class.
Corex, a producer of rare minerals used in various industrial processes, prepares its financial reports in accordance with IFRS. The company is most likely: required to carry its inventory at the lower of cost or net realizable value. permitted to carry its inventory at net realizable value even if this exceeds cost and there is not an active market for the minerals. permitted to carry its inventory at net realizable value even if this exceeds cost, but only if the minerals trade in an active
IFRS requires lower of cost or NRV unless it's a minerals producer. Then it can report it at NRV even if it's greater than cost if there's an inactive market and an active market for the mineral.
The financial statement analysis framework includes the following steps: Step 1: Articulate the purpose and context of the analysis Step 2: Collect input data Step 3: Process data Step 4: Analyze/interpret processed data Step 5: Develop and communicate conclusions/recommendations Step 6: Follow-up During which of these steps would an analyst most likely produce a report with a company valuation and estimated earnings per share?
It is during Step 5 of the financial statement analysis framework that analysts produce a report containing quantitative items such as a company valuation and forecast as well as qualitative items such as an competitive analysis of the company's industry. the production of the valuation would occur in step 3 and step 4 is when they interpret the data while producing the actual report is in step 5.
Under which section of a manufacturing company's cash flow statement are the following activities reported? Item 1: Purchases of securities held for trading Item 2: Purchases of securities held for investment Both items are investing activities. Only Item 1 is an operating activity. Only Item 2 is an operating activity.
Item 1 is an operating activity. Anything purchased for trading is an operating activity even B is correct. The purchase and sale of securities held for trading are considered operating activities even for companies in which this activity is not a primary business activity.
Retained cash flow is most likely used by credit analysts to assess which of the following factors? Scale Financial policy Leverage and coverage
Leverage and coverage Credit analysts group various quantitative metrics into categories representing the following four broad factors: Scale Business profile Leverage and coverage Financial policy Retained cash flow, which is defined as operating cash flow (before working capital changes) less dividends, is an input in the calculation of various measures that are used to assess a company's tolerance for leverage. Specifically, the additional cash flow left to the firm provides an indication of its ability to service its debt obligations.
Which of the following would most appropriately be classified as a liquidity constraint? A 5% policy weight for short-term government securities A plan to pay for a child's post-secondary education in five years A reduction in the allocation to thinly-traded high-yield bonds based on short-term capital market expectatations
Liquidity constraints are expected or unanticipated spending needs to be covered by portfolio withdrawals. An allocation to short-term government securities, or any other asset class, would be specified in the strategic asset allocation. Adjustments to the weight of an asset class such as high-yield bonds based on short-term capital market expectations is an example of a tactical asset allocation.
For a transportation company that reports in accordance with US GAAP, which of the following transactions would most likely be considered an operating activity for the cash flow statement? Raising capital by issuing bonds Making coupon payments to bondholders Purchasing new vehicles to expand operations
Making interest payments to bondholders (paying coupons) is classified as an operating cash flow under US GAAP, but may be listed as either an operating cash flow or a financing cash flow under IFRS. The purchase of vehicles to expand operations is a fixed capital investment (such as the purchase of PP&E) that would be classified as an investing cash flow. Raising capital by, for example, issuing bonds is a financing cash flow.
Which of the following is most likely to appear in the operating section of a cash flow statement under the indirect method? Net income. Cash paid to suppliers. Cash received from customers.
Net income Cash paid to suppliers and Cash received from customers would be on the direct method.
Two years ago, a company paid $300,000 for a piece of equipment. One year later, the equipment has a fair value of $265,000. Today, two years after being acquired, the equipment's fair value is $308,000. Assuming that it uses the revaluation model, the company will most likely report a gain of: $35,000 on its income statement for Year 2. $43,000 on its income statement for Year 2. $43,000 as other comprehensive income for Year 2.
a. Under the revaluation model, which is permitted under IFRS but not US GAAP, unrealized gains are reported in the income statement to the extent of previously reported losses. For Year 1, the company would have recognized a $35,000 loss on its income statement. This amount represents the difference between the equipment's fair value of $265,000 at the end of that period and its historical cost of $300,000. At the end of Year 2, the fair value of the equipment has increased to $308,000, which is $43,000 above its carrying value at the beginning of the period. Of this increase, a $35,000 gain is reported in the income statement because this is the amount of the loss that was recognized for Year 1. The additional gain of $8,000 ($43,000 above the carrying amount less the $35,000 gain reported on the income statement) is reported as other comprehensive income.
Unrealized gains and losses on securities categorized as available-for-sale: do not affect shareholders' equity. affect the profit and loss statement as unrealized holding gains or losses. affect shareholders' equity through other comprehensive income.
affect via OCI Unrealized gains and losses on available-for-sale securities are treated as other comprehensive income under both IFRS and US GAAP. A is incorrect because unrealized gains and losses on available-for-sale securities do affect shareholders' equity. They bypass the income statement and go directly to shareholders' equity through other comprehensive income. B is incorrect because unrealized gains and losses on available-for-sale securities are not reflected in the profit and loss statement.`
Which of the following statements is most accurate? According to the Austrian school of thought, an economic crisis on the scale of the Great Depression: should be addressed by reducing interest rates. should be addressed with minimal government intervention. represents an efficient response by the economy to external real shocks.
austrian = minimal government intervention According to the Austrian school, economic cycles (including recessions) are caused by ill-advised government policies, including setting interest rates at unjustifiably low levels. In the event of an economic crisis, the most appropriate response is to allow the economy to adjust to a new equilibrium with a minimum level of government intervention. It is the neoclassical school that believes expansions and contractions are a result of efficient responses of the economy to external real shocks that shift the supply curve.
State-owned enterprises most likely feature prominently in which of the following archetypes from the geopolitical risk framework? Autarky only Autarky and Hegemony Autarky and Bilateralism
b. Under the autarky model, state-owned enterprises are typically granted control of strategically important domestic industries. Hegemonic countries tend to allow state-owned enterprises to control key export sectors.
All else equal, if 1 percent of discouraged workers in an economy are reclassified as voluntarily unemployed, the activity ratio will most likely: decrease. be unaffected. increase.
b. be unaffected. The activity ratio is calculated as the number of people in the labor force divided by the working age population. Note that the labor force only includes people who currently have a job or who are actively looking for a job. Neither discouraged workers nor the voluntarily unemployed are considered to be actively seeking work, so both groups are excluded from the labor force. Reclassifying discouraged workers as voluntarily unemployed will have no impact on the activity ratio.
