IA3 Final

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CAPITAL STRUCTURE

A company's capital structure indicates its sources of funds from debt and equity issuances used to finance overall operations and capital expenditures

COMPONENT

A component is an activity that transfers a good or service to the lessee

DILUTED EPS

A computation that incorporates the effects of potentially dilutive securities

VALUATION ALLOWANCE

A contra asset to the deferred tax asset account on the balance sheet

LEASE

A contract that gives the lessee the right to use the asset, legally owned by the lessor, for a specified period of time in return for periodic payments or rentals made by the lessee

Residual Value Guarantee

A guarantee or assurance made to the lessor that it will receive a fixed dollar amount for the leased asset at the end of the lease

RIGHT-OF-USE ASSET

A leased asset that the lessee has the right to control

FREE CASH FLOW

A measure of cash flows that adjusts for a company's capital expenditures

BASIC EARNINGS PER SHARE

A measure of the earnings per share available to common shareholders that does not consider the potentially dilutive effects of convertible securities and employee options

BALANCE SHEET APPROACH

A method to compute deferred tax based on the differences between book carrying values and tax bases of a firm's assets and liabilities. Also referred to as the asset and liability method. See also balance sheet

CORRIDOR

A method used in accounting for defined-benefits pensions plans to determine when to report actuarial gains (losses) in net income. A corridor is defined as 10% of the larger of the beginning balance of the projected benefit obligation or the beginning balance of the plan assets

NET OPERATING LOSS

A net loss for tax purposes that occurs when tax-deductible expenses exceed taxable revenues

LEASE PAYMENT

A payment that can include six elements: fixed payments, variable payments that depend on a rate or index, exercise price of an option, penalty payments for termination, and a residual value guarantee for the lessee only

Vested Benefit Pension Obligation

A pension obligation that bases the defined-benefit obligation on the vested benefits that accrue to current employees

PROJECTED BENEFIT OBLIGATION

A pension obligation that considers all employees, both vested and non-vested, using estimated future salary levels

DEFINED-CONTRIBUTION PLAN

A pension plan in which the employer contributes a fixed amount each period based on a formula that is typically a percentage of the employee's salary

DEFINED-BENEFIT PLAN

A pension plan that specifies a predetermined amount of benefits that the employee will receive at the time of retirement

CONSERVATISM RATIO

A ratio of a company's aggressiveness in financial reporting compared to tax reporting

INCOME TAX BENEFIT

A reduction of income tax expense and thus increases income

INSTALLMENT SALE

A sale that is recognized as revenue only when cash is received for tax reporting but is recognized as revenue before cash is received for financial reporting

Employee Stock Purchase Plan

A stock-based compensation plan that offers employees the opportunity to purchase the company's shares, usually at a discount and without incurring transactions costs (i.e., brokerage fees)

TAX CONTINGENCY

A tax-related liability on the balance sheet

PRESENT VALUE OF THE DEFINED-BENEFIT OBLIGATION (PVDBO)

A term used under IFRS to describe the net liability under a defined-benefit pension plan. The same as the pension benefit obligation under U.S. GAAP

CASH-SETTLED STOCK APPRECIATION RIGHTS

A type of stock-based compensation with the employee receiving cash for the amount of the increase in a company's share price over a fixed period of time

On January​ 1, Year​ 1, Fields Corporation granted 400,000 stock options to certain executives. The options are exercisable no sooner than December​ 31, Year 3 and expire on January​ 1, Year 7. The vesting period is 3 years. Each option can be exercised to acquire one share of​ $10 par common stock for​ $15. An appropriate option−pricing model estimates the fair value of each option to be $9 on the date of grant. What amount should Fields recognize as compensation expense for Year​ 1? A. $1,200,000 B. ​$0 C. $600,000 D. $3,600,000

A. $1,200,000

Schmidt Electronics offered an incentive stock plan to its employees. On January​ 1, Year​ 1, 90,000 options were granted for 90,000 ​$1 par common shares. The exercise price equals the​ $6 market price of the common stock on the grant date. The vesting period is 3 years. The options cannot be exercised before January​ 1, Year​ 4, and expire on December​ 31, Year 5. Each option has a value of $3 based upon an option pricing model. What is the fair value of the​ award? A. $270,000 B. $540,000 C. $180,000 D. $90,000

A. $270,000

TNT​ Corporation's income tax payable is $190,000 and its tax rate is 25​%. Assuming no book−tax ​differences, what is​ TNT's income before​ taxes? (Round your answer to the nearest whole​ dollar.) A. $760,000 B. $253,333 C. $190,000 D. $47,500

A. $760,000

On March 1 of the current​ year, Stafford Corporation leased equipment under a six−year noncancellable lease. The estimated economic of the equipment is nine years. The fair value of the equipment is $860,000. The lease does not contain a bargain purchase option or a transfer of title. Stafford must classify this lease as a capital lease if the present value of the minimum lease payments is at least​ ________. A. $774,000 B. $645,000 C. $860,000 D. $430,000

A. $774,000

On January​ 1, Year​ 1, Axis Corporation granted employees 71,000 stock options for 71,000 shares of $1 par value common stock. The exercise price on the date of issue was equal to the market price of $25. There is a two year vesting period and the options expire in four years. Employees have the right to sell back the shares to the corporation within six months of exercise. The fair value of the options has been estimated to be $37 per option and the company does not expect any forfeitures of the options. What is the journal entry for compensation expense for Year​ 1? A. Compensation Expense 1,313,500 Liability for Stock−based Compensation 1,313,500 B. Compensation Expense 1,775,000 Liability for Stock−based Compensation 1,775,000 C. Compensation Expense 1,313,500 Deferred Compensation 1,313,500 D. Compensation Expense 1,775,000 Deferred Compensation 1,775,000

A. Compensation Expense 1,313,500 Liability for Stock−based Compensation 1,313,500

On January​ 1, 2019, Precision Pumps leases nonspecialized pumping equipment to Mega Construction. The equipment is delivered on January 1. The lease term is 4 years with no renewal or purchase​ options, and title to the leased asset is retained by the lessor at the end of the lease term. The lease requires annual fixed rental payments of​ $7,000 per year beginning on January​ 1, 2019, and then December 31 of each year starting on December​ 31, 2019. The fair value of the equipment is​ $37,592 and has a carrying amount on​ Precision's books of​ $22,000. The equipment has a remaining life of 8 years. The estimated residual value of the equipment is​ $15,000. The lessee does not guarantee the residual​ value, but Precision secured an unrelated third party to guarantee​ $15,000; collection of this guaranteed residual value and lease payments are reasonably certain. The rate implicit in the lease is​ 6%. There are no prepaid​ rentals, and neither party to the agreement pays initial direct costs. What is the proper classification of this lease for Precision​ Pumps? A. Direct financing lease B. Finance lease C. Operating lease D. Sales−type lease

A. Direct financing lease

Accounting changes detract from which one of the following enhancing qualitative characteristics of accounting​ information? A. comparability B. relevance C. materiality D. representational faithfulness

A. comparability

For an operating​ lease, the lessee will record a​ ______ and an associated lease liability on the balance sheet. A. right−of−use asset B. intangible asset C. contra−liability account D. capital adjustment

A. right−of−use asset

When a lessor records a sales−type ​lease, the transaction is similar to​ ________. A. selling merchandise on account B. selling a fixed asset C. purchasing merchandise on account D. exchanging assets

A. selling merchandise on account

On the books of a​ lessor, a lease may be classified as either​ ________. A. ​operating, direct−​finance, or sales type B. ​operating, sales type or indirect−finance C. ​operating, capital, or direct−finance D. direct−finance or sales type

A. ​operating, direct−​finance, or sales type

CARRYBACK

Allows a company to offset the current tax loss against prior years' taxable income and claim a refund for taxes previously paid on the amount offset

UNGUARANTEED RESIDUAL ASSET

An amount the lessor expects to derive from the leased asset at the end of the lease term

SPECIALIZED NATURE

An asset that has to alternative use to the lessor at the end of the lease term

ACTUARY

An individual skilled in mathematics, statistics, and finance who analyzes the financial consequences of risk based on probability assessments

BARGAIN PURCHASE OPTION

An option allowing the lessee to acquire the property at a price specified at the inception of the lease that is substantially below the expected fair market value of the property at the date the option can be exercised

ERROR

An unintentional mistakes often due to an incorrect application of an accounting policy or incorrect mathematical computation

Nace Manufacturing Company leased a piece of nonspecialized equipment for use in its operations from Righteous Leasing on January​ 1, 2019. The 10 year lease requires lease payments of​ $4,000, beginning on January​ 1, 2019, and at each December 31 thereafter through 2027. The equipment is estimated to have a 10 year​ life, is depreciated on the straight−line basis and will have no residual value at the end of the lease term.​ Nace's incremental borrowing rate is​ 11%. Initial direct costs of​ $1,000 are incurred by the lessee on January​ 1, 2019. Righteous Leasing acquired the asset just prior to the lease term at a cost of​ $27,000. Collection of all lease payments is reasonably assured. What is the proper classification of the lease to​ Nace? A. Sales−type lease B. Finance lease C. Operating lease D. Either A or B

B. Finance lease

Greene Co. has book income of $445,000​, and a tax rate of 20​%. Assuming there are no book−tax ​differences, what will the journal entry be to record the income tax​ expense? A. Income Tax Payable 178,000 Income Tax Expense 178,000 B. Income Tax Expense 89,000 Income Tax Payable 89,000 C. Income Tax Payable 89,000 Income Tax Expense 89,000 D. Income Tax Expense 178,000 Income Tax Payable 178,000

B. Income Tax Expense 89,000 Income Tax Payable 89,000

Caesar Corporation reports municipal interest income on their financial statements. What​ (if any)​ book-tax difference will​ result? A. Temporary​ difference; taxable income greater than book income. B. Permanent​ difference; book income greater than taxable income. C. Temporary​ difference; book income greater than taxable income. D. No​ difference; municipal interest is taxable income.

B. Permanent​ difference; book income greater than taxable income.

Which one of the following changes is not an accounting​ change? A. estimate B. error C. entity D. principle

B. error

A lessee normally computes the liability on a lease as the​ ________. A. fair market value of the leased asset B. present value of minimum lease payments C. sum of the cash payments over the term of the lease D. future value of the minimum lease payments

B. present value of minimum lease payments

The net investment in the lease for a sales−type lease reflects the assets related to the lease transaction and is comprised of the​ following: ________. A. the lease receivable and the future value of any guaranteed residual asset B. the lease receivable and the present value of any unguaranteed residual asset C. the lease receivable and the future value of any unguaranteed residual asset D. the lease receivable and the present value of any guaranteed residual asset

B. the lease receivable and the present value of any unguaranteed residual asset

ASSET/LIABILITY (BALANCE SHEET) APPROACH

Basing the decision to record a transaction on whether an economic resource is received and it meets the definition of an asset, such as accounts receivable

If an unexpected forfeiture of options occurs under a stock option​ plan, the change in compensation is treated as​ ________. A. an adjustment to additional paid in capital B. an adjustment to deferred compensation C. a change in estimate D. a change in other comprehensive income

C. a change in estimate

Harvey Inc. reported net earnings of $500,000 for the year. Harvey has​ 200,000 shares of common stock outstanding all year. Two years ago the company granted​ 20,000 stock options that allow employees to purchase​ 20,000 shares for​ $15 each. The company stock has averaged​ $20 in the market during the year. Compute the basic and diluted EPS. A. basic EPS $2.50​; diluted EPS $1.67 B. basic EPS $2.44​; diluted EPS $2.44 C. basic EPS $2.50​; diluted EPS $2.44 D. basic EPS $2.50​; diluted EPS $2.50

C. basic EPS $2.50​; diluted EPS $2.44

Which one of the following would not be affected by a change in revenue recognition requiring a retrospective​ change? A. deferred taxes B. unearned revenue C. cash D. revenue

C. cash

CHANGES IN ACCOUNTING PRINCIPLE

Changes from one generally accepted accounting method to another generally accepted accounting method

DIRECT EFFECTS

Changes necessary to implement the change in accounting principle

INDIRECT EFFECTS

Changes to current or future cash flows that result from the change in accounting principle

CHANGES IN ACCOUNTING ESTIMATE

Changes which involve revisions of estimates used in accounting

CHANGES IN THE REPORTING ENTITY

Changes which occur when a company reports financial statements that are, in effect, financial statements for a different reporting entity

RETROSPECTIVE METHOD

Companies reporting an accounting change with the retrospective method restate all prior-year financial statements presented in the annual report as if the newly adopted principle had always been used

PROSPECTIVE METHOD

Companies using the prospective method to report an accounting change make the change in the current year (that is, the year of the change) and all future years

STOCK APPRECIATION RIGHTS

Compensation in the form of stock appreciation rights (SARs) where the employee receives cash for the amount of the increase in share value over a pre-established price over a fixed period of time

EXECUTORY COSTS

Costs incurred by a lessee related to ownership of a leased asset such as sales and property taxes, insurance, and maintenance

PRIOR SERVICE COSTS

Costs that represent service benefits provided to current employees on the initial adoption or amendment of an existing defined-benefit pension plan

Lyon​ Group's income before taxes is $430,000 and its tax rate is 20​%. Lyon included $40,000 in fines and penalties in the $430,000. There are no other book−tax differences. What is income tax payable for Lyon​ Group? A. $86,000 B. $8,000 C. $78,000 D. $94,000

D. $94,000

On March 1 of the current​ year, Hill Corporation leased sound equipment from McEntire Company. The equipment has a life of 20 years. There is no bargain purchase option or passage of title. For the lease to be considered a capital​ lease, it must have a term of at least​ ________. A. 20 years B. 12 years C. 14 years D. 15 years

D. 15 years

Which of the following statements regarding stock options is​ true? A. Companies expense stock−based compensation at the fair value of the stock on the expected date of exercise. B. Unexercised options may be sold or transferred in the open market. C. An employee will exercise a stock option only when the current market price of the stock is less than the option price. D. Employee stock options are a restricted form of a call option.

D. Employee stock options are a restricted form of a call option.

Which one of the following might be affected by a change in revenue recognition requiring a prospective​ change? A. retained earnings B. deferred taxes C. unearned revenue D. management compensation

D. management compensation

The compensation associated with equity classified awards of stock options is​ ________. A. recorded as compensation expense when the options are granted B. allocated to compensation expense until the options expire C. the estimated book value of the options D. the estimated fair value of the options

D. the estimated fair value of the options

On the balance​ sheet, the lease liability is measured as​ ______. A. the present value of the lease payments plus the future value of the guaranteed residual value​ (if any) B. the present value of the lease payments less the present value of the guaranteed residual value​ (if any) C. the future value of the lease payments plus the future value of the guaranteed residual value​ (if any) D. the present value of the lease payments plus the present value of the guaranteed residual value if the lessee guarantees​ it(if any)

D. the present value of the lease payments plus the present value of the guaranteed residual value if the lessee guarantees​ it(if any)

Charlotte Engineering reported net income of​ $400,000 for the year. It declared​ $30,000 in preferred dividends on December 23. It began the year with​ 100,000 common shares outstanding. On July​ 1, Charlotte declared a​ 5% common stock dividend. Compute the basic EPS for the year.​ (Round your answer to the nearest​ cent.) A. ​$3.89 B. ​$3.61 C. ​$3.70 D. ​$3.52

D. ​$3.52

Swanson Corporation is leasing a machine from​ Gray, Inc.​ Swanson's incremental borrowing rate is​ 13%. The prime rate of interest is currently​ 7%. Gray's implicit rate in the lease is​ 9%; Swanson does not know this rate. At what interest rate should the minimum lease payments be​ computed? A. ​11% B. ​9% C. ​7% D. ​13%

D. ​13%

TEMPORARY DIFFERENCES

Differences in the book treatment and tax treatment for a given transaction that are different in a given year, but will be the same over the life of the firm

PERMANENT DIFFERENCES

Differences in the book treatment and the treatment for a given transaction that are different over the life of the firm

BALANCE SHEET ERRORS

Errors which only affect asset, liability, and equity accounts, are typically the result of a misclassification of accounts in the recording of a transaction, . See also balance sheet

INCOME STATEMENT ERRORS

Errors which only affect revenue, gain, expense, and loss accounts, are also commonly caused by misclassification mistakes

T/F - A complex capital would include only convertible debt and convertible preferred stock.

False

T/F - A guaranteed residual value reduces the amount of minimum lease payments.

False

T/F - Book income refers to the amount of income reported on a​ company's tax return.

False

T/F - Changes in reporting entities are accounted for prospectively.

False

T/F - One disadvantage of leasing an asset is that the lessee bears the risk of obsolescence.

False

T/F - Prior​ years' financial statements are restated for changes in material accounting estimates.

False

T/F - The fair value of stock options on the date of grant is usually readily determinable.

False

T/F - The lessee depreciates leasehold improvements over the life of the improvements or the life of the​ lease, whichever is longer.

False

EMPLOYEE STOCK OPTIONS

Financial instruments that give an employee the right to purchase shares of the company's stock directly from the company at a fixed price over a specified period of time

OPERATING LEASE

For a lessee, a lease that does not meet any one of the five Group I criteria is classified as an operating lease. For a lessor, a lease that does not meet any one of the five Group I criteria or the Group II criteria is classified as an operating lease

FINANCE LEASE

For a lessee, a lease that meets any one of the five Group I criteria, the lessee classifies the lease as a finance lease

SALES-TYPE LEASE

For a lessor, a lease that meets any one of the five Group I criteria is classified as a sales-type lease

DIRECT FINANCING LEASE

For a lessor, a lease that meets both of the Group II criteria but none of the Group I criterion is classified as a direct financing lease

Liability-Classified Award

For a liability-classified award, an employee receives cash or some other company resource based on the value of the shares in the stock-based compensation

RETROACTIVE ASSUMPTION

For share issuances that occur before the split or dividend, the retroactive assumption assumes that the split or dividend occurred at the time of the issuance

CALL OPTION

Gives an investor the right (but not the obligation) to purchase a security at a fixed price over a specified period of time

LEASEHOLD IMPROVEMENTS

Improvements made to leased property that are not movable and revert to the lessor when the lease expires

RESIDUAL METHOD

In a lease contract, residual method subtracts the other standalone prices from the total contract consideration and assigns the remaining amount as the estimated standalone price of the remaining component

STANDALONE PRICE

In a lease contract, the standalone price of each component is the price at which the lessee would purchase the component of a contract separately

INITIAL DIRECT COSTS

Incremental costs that the lessee would not have incurred if it had not obtained the lease, such as commissions, legal fees resulting from the execution of the lease, costs to prepare documents after the execution of the lease, and payments to existing tenants to move out of a facility

NET INCOME AVAILABLE TO COMMON SHAREHOLDERS

Net income less preferred dividend requirements

BANK OVERDRAFT

Occurs when the balance in a bank account falls below zero

NONCONTRIBUTORY PLANS

Pension plans in which the employer is responsible for funding the total cost of the plan

CONTRIBUTORY PLANS

Pension plans that require employees to fund some or all pension benefit costs and allow employees to make additional contributions to voluntarily increase their retirement benefits

CARRYFORWARD

Permits a company to offset the current tax loss against future taxable income, thereby reducing future taxable income and lowering the amount of tax due in the year of the offset

NET INVESTMENT IN THE LEASE FOR A SALES-TYPE LEASE

Reflects the assets related to the lease transaction and is composed of the lease receivable and the present value of ant unguaranteed residual asset

DEFERRED TAX ASSET

Represents a future reduction in income taxes payable

DEFERRED TAX LIABILITY

Represents additional income taxes payable that will be due in future years

POTENTIALLY DILUTIVE SECURITIES

Securities that are not currently common shares, but could become common stock through conversion or exercise

Pension Trust

Separate legal entity called to which a company (referred to as the sponsor company) sets aside funds for future pension benefits. The trust accumulates the pension fund assets and makes payments to retirees

TREASURY STOCK METHOD

Specifies the assumption that firms use the proceeds from the hypothetical exercise of in-the-money options or warrants to purchase treasury stock at the average market price of the common stock for the period

COMPENSATION ARRANGEMENT

Specifies the number of options granted, the exercise price, the vesting period, and the expiration date

RESTATED FINANCIAL STATEMENTS

Statements which adjust opening balance sheet accounts for the cumulative effect of applying the new principle in all prior years and present all subsequent financial statements as if the policy had always been used. Specifically, companies adjust: 1. Assets and liabilities as of the beginning of the first period presented to reflect the cumulative effect of the change on periods prior to those presented. 2. Retained earnings (or other appropriate components of equity) for the beginning of the first period presented to reflect the cumulative effect of the change on reported income for periods prior to those presented. 3. Financial statements for each period presented to reflect the effects of the change

LEASE TERM

Term beginning at the lease commencement date and includes the noncancellable period for which a lessee has the right to use the leased asset

INTRAPERIOD TAX ALLOCATION

The allocation of income tax expense to different sections of the comprehensive income statement

BOOK INCOME

The amount of income that a company reports in its financial statements. See also book and tax reporting, differences between

TAXABLE INCOME

The amount of income that a company reports on its tax return

BASIS

The carrying values of assets and liabilities, either for book or tax reporting

LEASE COMMENCEMENT

The date on which the lessee is allowed to begin using the leased asset

LEASE INCEPTION

The date the lease agreement is signed

UNEXPECTED RETURN

The difference between the actual and expected return

EXERCISE PRICE

The fixed amount paid to acquire a share of stock based on the terms of the option plan. Also referred to as strike price

EFFECTIVE TAX RATE (ETR)

The income tax expense divided by book income before taxes

SERVICE COST

The increase in the projected benefit obligation resulting from one additional year of service from employees

STATUTORY TAX RATE

The legally imposed rate in a given taxing jurisdiction

LESSOR

The owner of the asset

LESSEE

The party acquiring the use of the asset in a lease

Expiration Date

The point at which the employee can no longer exercise the options

LEASE RECEIVABLE

The present value of the payments the lessor will receive plus the present value of any residual value guarantees when the guarantee can be provided by either the lessee or a third party

INCREMENTAL BORROWING RATE

The rate of interest that a lessee would have to pay to borrow an equal amount on a collateralized basis over a similar term to the lease payments in a similar economic environment

IMPLICIT RATE

The rate of interest that sets the present value of the lease payments plus the present value of the amount that a lessor expects to obtain from the leased asset at the end of the lease term equal to the sum of the fair value of the leased asset and any deferred initial direct costs incurred by the lessor

EXPECTED RETURN ON PLAN ASSETS

The return based on expectations for interest, dividends, and fluctuations in the market value of the fund assets

VESTING PERIOD

The time the employee must remain with the company before exercising the options. Also referred to as service period

T/F - A lease is classified as a capital lease if the lease term is at least​ 75% of the estimated life for the property.

True

T/F - A stock option plan is generally revalued whenever there is a change in the estimated percentage of options that will be forfeited.

True

T/F - Accounting estimate changes are handled prospectively.

True

T/F - Accounting principle changes are generally handled retrospectively.

True

T/F - Antidilutive securities are excluded from the diluted EPS equation.

True

T/F - Basic EPS must be computed before diluted earnings per share can be properly computed.

True

T/F - For a dealer or manufacturer​ lessor, the use of a nonoperating lease is preferred because it recognizes financing income and also accelerates revenue recognition in the form of the gross profit on the sale in the year of commencement. Under an operating lease​ treatment, the lessor only records rental income each​ year, spreading the revenue flow over the lease term.

True

T/F - For a lessor to classify a lease as a capital​ lease, collectability of the required minimum lease payments must be reasonably assured.

True

T/F - For an operating​ lease, the lessee is only required to report rent expense on its income statement.

True

T/F - For share issuances that occur before a stock split or​ dividend, the retroactive assumption assumes that the split or dividend occurred at the time of the issuance.

True

T/F - Georgio, Inc. decided to move its business from its current location to another larger plant. Management should examine the salvage value of the building in the future and the change in the useful life to see if a change in the depreciation of the current building is warranted.

True

T/F - If a lease transaction is in essence a purchase of an asset with the issuance of​ debt, then the lessee records both the asset and the liability on the balance sheet.

True

T/F - Retroactive application of stock splits and stock dividends to the weighted−average number of common shares makes EPS comparable for prior and current periods of one entity.

True

T/F - Retrospective changes require restatement of all periods reported in the annual report as if it had been used in those prior years.

True

T/F - Stock options and stock warrants affect only the denominator of the diluted EPS calculation.

True

T/F - Taxable income refers to the amount of income reported on a​ company's tax return.

True

T/F - The first step in measuring compensation expense from granting employee stock options is to determine the fair value on the date of grant.

True

T/F - The statutory tax rate is the legally imposed rate in a given taxing jurisdiction.

True

T/F - The value of stock options expected to be forfeited reduce compensation expense.

True

T/F - Typically, the lessee will pay for executory​ costs, expensing them as incurred.

True

T/F - U.S. GAAP requires companies to reconcile the federal statutory income tax rate to the effective tax rate.

True

T/F - Under U.S.​ GAAP, companies generally use a balance sheet approach to account for temporary differences between book and tax treatment of transactions.

True

T/F - Under U.S.​ GAAP, when a firm determines that all or a portion of a deferred tax asset is not​ realizable, they will use a valuation allowance to reduce the balance.

True

T/F - When applying the if−converted ​assumption, the company assumes conversion at the beginning of the year for a convertible bond or convertible preferred stock outstanding at the beginning of the year.

True

RESTRICTED STOCK PLAN

Under a restricted stock plan, a company awards actual shares in the name of a specific employee, resulting in an allocation of restricted shares to the designated employee

IF-CONVERTED ASSUMPTION

Under the if-converted assumption, a company assumes that both hypothetical and actual conversions of potentially dilutive securities occur: 1. At the beginning of the year, if the potentially dilutive security is outstanding as of the beginning of the year. 2. At the issue date of the dilutive security, if the potentially dilutive security is issued during the year

REVERSES

When a deferred tax asset or liability is reduced, either when a company: 1. Has to pay the taxes it previously recorded as a deferred tax liability, or 2. Receives the benefits of reduced taxes originally reported as a deferred tax asset

Equity-Classified Award

With equity-classified awards, employees have the right to receive shares

SETTLEMENT RATE

the interest rate used to compute the interest on the PBO


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