AC 310 Homeworks
Which of the following are true of deferred income taxes with regards to an indirect method cash flow statement?
An increase in net deferred tax liabilities must added to accrual-basis net income in the cash flow statement, and a decrease in net deferred tax liabilities must be subtracted from accrual-basis net income.
Breakage
Breakage can only be recognized as revenue to the extent that it is probable a reversal will not be necessary, It is typical that a portion of gift card sales will go unused by customers, Breakage refers to the unused portion of gift card balances
Which of the following may cause fully diluted EPS to differ from basic EPS?
Convertible preferred stock, warrants, management stock options.
Common non-GAAP metrics include
EBITDA and Earnings before restructuring charges.
A subsequent event occurs before the close of a firm's fiscal year-end but after the financial statements are issued
FALSE
A subsequent event occurs before the close of a firm's fiscal year-end but after the financial statements are issued.
FALSE
Amounts received from the sale of gft cards should be recognized by the seller at the time of the sale
FALSE
Amounts received from the sale of gift cards should be recognized by the seller at the time of sale.
FALSE
Under GAAP, if an asset is written down, it can later be written back up
FALSE
Debt prepayments and extinguishment costs should be classified as____ cash flows.
Financing
Valuation allowances
Firms must consider all available information, both positive and negative AND start-up companies commonly record valuation allowances for a large portion, if not all, of the company's deferred tax assets.
Costs capitalization and expenses
For contracts lasting less than a year, the incremental costs may be expensed immediately, Incremental costs related to the successful negotiation of a contract should be capitalized, and expenses that would have neen incurred without the contract signing are expensed immediately.
Which of the following represents the difference between the total fair value of an acquired business and the fair value of its identifiable net assets?
Goodwill
Which of the following are commonly excluded from non-GAAP income-related metrics presented in 10-K or 10-Q reports?
Interest, taxes, depreciation, and amortization.
Identify the correct statement regarding preparing cash flow from operations using the indirect method
It adjusts for items included in accrual-basis net income that did not affect operating cash flows.
IFRS accounting for inventory (IAS 2) does not permit which of the following cost flow assumptions?
LIFO
LIFO liquidations
LIFO liquidations can cause reperoted margins and income trends to be distorted AND a mismatching of LIFO layers leads to an impact on reported earnings
A disclosure required by the SEC to report the dollar magnitude of the difference between LIFO and FIFO inventory costs is the
LIFO reserve
When accounting for a long-term operating lease under ASC 842, which one of the following accounts are charged with the expense on the lessee's income statement?
Lease expense
Which of the following are example of subsequent events that must be disclosed?
Loss of a major customer, issuance of equity securities, or a catastrophic loss.
A disposal group is considered held for sale if which of the following ae met?
Management has committed to a plan to sell the component, the component is available for immediate sale in its present condition subject only to terms that are usual and customary for such sales, an active program to locate a buyer has been initiated, as have all other necessary actions, the sale is probable, and is expected to be completed within one year, the component is being actively marketed at a reasonable price, an is unlikely that significant changes will be made to the disposal plan of that it will be withdrawn.
Which of the following may cause fully diluted EPS to differ from basic EPS
Management stock options, convertible preferred stock, and warrants
Under ASC Topic 606 for revenue recognition, which of the following factors is not an indicator of the principal/agent determination?
Shipping terms.
Which of the following explains the important accounting choices the reporting entity uses to account for selected transactions and accounts?
Summary of Significant Accounting Policies
ASC Topic 606 provides a five-step model for evaluating how and when revenue should be recognized rather than providing detailed industry by industry standards.
TRUE
ASC Topic 606 provides a five-step model fore evaluating how and when revenue should be recognized rather than providing detailed industry-by-indstry standards
TRUE
Firms must continually adjust its allowance as its collection experience and expectations about the future change
TRUE
Generally accepted accounting principles do not require the cost flow assumption to correspond to the physical flow of inventory
TRUE
If a component has been disposed of, it is treated as a discontinued operation if the disposal represents a strategic shift that has a major effect on an entity;s operations and financial results.
TRUE
Individual deferred tax assets and liabilities do reverse eventually but they are replaced with new ones which is why we generally never see a zero balance
TRUE
The SEC can override FASB determinations and positions
TRUE
The carrying cost of inventory will include the purchase cost, sales tax, transportation costs, insurance costs, storage costs, and any other costs required to obtain the merchandise and make it ready for sale
TRUE
Under a consignment arrangement, revenue is not recognized until the consigned goods are sold to a third party
TRUE
Under a consignment arrangement, revenue is not recognized until the consigned goods are sold to a third party.
TRUE.
Which of the following statements is not true regarding revenue recognition regarding gift cards?
The amount received from the sale of gift cards is required to be recognized as revenue when the gift cards are sold.
Forester Company has provided you the following information for the current year. The beginning and ending balances for Buildings and equipment were $275,000 and $300,000, Accumulated depreciation was $40,000 at the beginning of the year and $50,000 at the end of the year. A storage shed with an original cost of $60,000 and a book value of $40,000 was sold for $45,000. Which of the following statements is true?
The company purchased $85,000 in buildings and equipment during the year.
For a disposal group considered held for sale, which of the following conditions are required to be met?
The component is available for immediate sale in its present condition subject only to usual and customary terms for such sales, management has committed to a plan to see the component, and the sale is probable and is expected to to be completed within one year
Gratiot Corporation reported income tax expense of $13,500 on its income statement. It had income taxes payable of $4,000 at the beginning of the year and $3,475 at the end of the year. How does this affect cash provided by operating activities in a cash flow statement?
The decrease in income taxes payable $525 is subtracted from net income using the indirect method.
Which of the following criteria must be met to recognize revenue under a bill-and-hold arrangement?
The product is ready for physical transfer to the customer, the product is identified separately as belonging to the customer, and the reason for the bill-and-hold arrangement is substantive.
Which of the following statement is not correct regarding a company's financial statements?
They are comparable to the statements of other companies as all publicly held companies follow the very precise science of accounting.
Which of the following best describes expenses?
They are the expired costs or assets "used up" during the accounting period.
Financials of a company can
They may present a picture of the company at a moment in time, describe changes that took place over a period of time, reflect economic events that affect the company, as a management report card, as an early warning signal, and as a measure of accountability.
Under which of the following circumstances is it impracticable to apply a change in accounting principle retrospectively?
When the retroactive effect is indeterminable
Financial statements and related disclosures provide information about
a company's economic activity
The allowance for credit losses account is classified as
a contra-asset account
In January 2020, Livingston Publishing sells three-year subscriptions to its annual publication to 500 customers for $30 each. Under the accrual basis of accounting, the entry to record the cash received includes
a credit to deferred subscription revenue of $15,000
Baxter Company sold equipment for $6,000. The equipment originally cost $10,000, had a salvage value of $2,000 and a useful life of 5 years, and had a book value of $5,200 on the date it was sold. The journal entry to record the sale of the truck would include which of the following?
a credit to equipment for 10,000, a debit to accumulated depreciation for 4,800, and a credit to gain on sale of asset for 800.
Prince Corporation sells a truck for $8,500 after it had been used for 3 years. The truck was purchased for $17,000, had a useful life of 5 years, and had a $2,000 salvage value. The journal entry to record the sale of the truck would include
a credit to gain on sale of asset of $500.
The change in the balance of the Bonds Payable account would be recorded on the statement of cash flows as 100k→80k
a decrease of $20,000 under financing activities.
The change in the balance of Bonds Payable account would e recorded on the statement of cash flows as
a decrease/increase of the change under financing activities
A company's financials can be sued for
a management report card, an early warning signal, and a measure of accountability.
The cumulative effect approach is allowed when ther is a change in accounting principle if
a particular standard specifies that it be used, and retrospective restatement is not practicable.
Which transaction would increase the inventory account
a purchase of inventory
The term ordinary annuity refers to
a series of equal payments beginning one year from today
Notes to the financial statements typically contain all of the following
a summary of significant accounting policies, related-party transactions, and disclosure of important subsequent events → NOT MD&A
An example of a monetary liability is
accounts payable
An example of a nonmonetary liability is
accrued warranties
Amounts on the balance sheet that do not map directly to corresponding account changes in the statement of cash flows include
acquisitions of other companies, asset write-offs and impairments, and foreign currency translation adjustments.
Current ratio distortion under LIFO inventory costing may be adjusted by
adding the LIFO reserve to current assets
Goods available for sale is determined by
adding the cost of any beginning inventory and the cost of purchases during the period
True of the classification of deferred tax assets and liabilities
all deferred tax assets and liabilities are classified as noncurrent
Under ASC Topic 606 guidance for revenue recognition, all of the following conditions must be met to account for a contract with a customer
all parties to the contract have approved the contract, each party's rights are identified regarding goods or services to be exchanged, the contract has commercial substance.
Unequal lease payments relating to an operating lease should be
allocated equally to expense over the lease term
Zero-coupon bond settlement should be
allocating between operating and financing cash flows.
Goodwill arising from a business combination is reported on the balance sheet as
an intangible asset
Under US GAAP, a component of an entity may include
an operating segment and a subsidiary
Intangible assets that have indefinite lives
are not amortized, and are evaluated annually for impairment
Unusual or infrequently occurring items
are reported as a separate line item with continuing operations
Subsequent events
are required to be disclosed if they aer material and likely to influence investor's appraisal of the risk nd return of the reporting entity
A company's financial statements can be used for all of the following purposes except
as a scorecard on the company's social responsibility.
Which of the following is the reason that we almost never see a deferred tax asset or liability balance of zero in a balance sheet?
as individual deferred tax assets and liabilities reverse, they are replaces with new deferred tax assets and liabilities.
In a common-size balance sheet, each balance sheet account is expressed as a percentage of total
assets
The time that the performance obligation is satisfied for revenue recognition is usually
at the time of the sale.
Excessive write-offs and overstated estimated charges for future expenditures are known as
big bath restructuring charges
A convertible bond
can be exchanged for common stock
Creditors assess credit risk by comparing a firm's required principal and interest payments to estimates of the firm's current and future
cash flows
When estimating the average cash interest rate
cash interest paid is divided by average outstanding debt
An increase in the useful life of equipment currently in use represents a
change in accounting estimate
A change from LIFO to FIFO inventory method represents a
change in accounting principle
Information asymmetry role of accounting is associated with
communicating private information to people outside the company
The contract efficiency role of accounting is associated with
communicating private information to people outside the company
Which of the following are ture of financial information disclosure
companies frequently communicate more financial information than is required AND the SEC and FASB regulate financial reporting in the United States.
The multiple-step income statement separates earnings into two components which include
continuing operations and discontinuing operations
Accumulated depreciation is a
contra-asset account
Examples of intangible assets include
copyrights, patents, franchises.
The rationale for having different GAAP for private and public companies is that
cost-benefit trade-offs are different
One indication of financial weakness is that
current cash from operations is less than the debt due in the next year.
Cash is always measured for the balance sheet at
current market value
The ______ method of translating financial statements generates a potential discrepancy between the change in the inventory amount presented in the balance sheet and the cash flow statement inventory change figure
current rate.
Sales on account are recorded on the ___ side of A/R and collections on account are recorded on the ___side.
debit ; credit
As an economy comes out of a recession, the Allowance for credit losses as a percentage of gross accounts receivable would be expected to
decrease
Buying new equipment under the indirect methods of accounting would
decrease cash flow from investing activities
If the market interest rate increases, the present value of fixed-rate bond cash flows
decreases
The Allowance for sales returns and allowances is
deducted from accounts receivable
Adjustments is commonly made to the cash flow from operating activities under the indirect method because it does not cause cash to increase or decrease?
depreciation expense
Depreciation expense affect on statement of cash flows
depreciation expense must be added back to accrual-basis net income using the indirect method.
Which of the following are reasons for receivables growth exceeding sales growth?
deteriorating creditworthiness among existing customers AND extending the payment period for A/R from 30dys to 90dys
Meyer Corporation has a two-year old truck that originally cost $80,000, has a remaining life of 8 years with no salvage value, and is depreciated using the straight-line method. Current resale of the truck is $65,000. Expected net operating cash inflows are $14,250 and a 10% rate is used. Identify the correct statement
discounted present value is $76,023
The order of the documents issued by the FASB for a new accounting standard is
discussion memorandum, exposure draft, anf accounting standards update.
Book tax expense divided by book pretax income results in the
effective tax rate
The LCNRV method can be applied to
either individual inventory items, classes of inventory or the inventory as a whole.
Bonds sell at par when the stated rate
equals the effective yield
When a long-lived asset expenditure doesn't meet the capitalization criteria, it must be treated as a period___ and be charged to income
expense
Accrued liabilities represent
expenses that have been recognized on the income statement but not yet been paid.
The Summary of Significant Accounting Policies
explains the important accounting choices the reporting entity uses to account for selected transactions and accounts, and improves financial statement users' ability to make valid intercompany comparisons.
The sale of receivables to a third party is called
factoring
All of the following led to the 2008 financial crisis, except
fewer subprime loans were made prior the the crisis
The ability to raise additional cash by selling assets, issuing stock, or borrowing more is
financial flexibility
If accounts receivable is factored and it fails to qualify as a sale under GAAP, the proceeds are shown as a(n)____ cash inflow.
financing
Cash flows arising from the issuance of company bonds are cash flows from
financing activities
Cash flows arising from the payment of dividends are cash flows from
financing activities
Cash flows that result whena company sells its own stock or bonds, pays dividends, or issues or repays debt are
financing activities.
Investors who compare a firm's discounted future cash flows to the current market price of a stock are using the
fundamental analysis approach
Investors who compare a firm's discounted future cash flows to the current market price of a stock are using the
fundamental analysis approach.
Examples of unusual or infrequently occurring items include
gains or losses form foreign transactions or that arise when a foreign subsidiary's financial statements are remeasureed in USD, write-down or write-offs of receivables, inventories, equipment leased to others, and intangibles, gains or losses from the sale or abandonment of of property, plat& equipment, special one-time charges resulting from corporate restructurings, gains or losses from the sale of investments, and the losses from floods, fires, or other disasters
Companies that have projected operating cash flows that are more than sufficient to meet debt payments are
good credit risk companies
Bennett Corporation sells kayaks. At the beginning of the year, there was one kayak in inventory costing $300. During the period, Bennett purchased another kayak for $325 and sold one of the kayaks for $475. Identify the true statement
goods available for sale during the period was $625
Current liabilities are reported on the balance sheet at
historical cost
The dominant GAAP measurement method for measuring long-lived assets is the
historical cost
The use of the lower of cost or net realizable value (LCNRV) method to value inventory for reporting purposes is a departure from the accounting principle of
historical cost
Net Property, plant, and equipment are reported on the balance sheet at
historical cost minus accumulated depreciation
Current liabilities are reported on the balance sheet at
historical cost.
The balance sheet provides information on all of these
how management invested its money, where the money came from, and assessing rates of return
Fundamental analysis attempts to
identify mispriced stocks
The LIFO conformity rule states that
if LIFO is used for tax purposes, the external financial statements must also use LIFO
Flow of inventory
if the cost of inventory never changed, all three cost flow assumptions would yield the same financial statement results, and according to GAAP, the cost flow assumption used by companies does not have to correspond to the actual physical flow of inventory
Which of the following would result in changes in asset balances unrelated to cash
impairment of assets and write-down of assets
Non-GAAP measures typically are found
in the MD&A section
The matching principle requires that expenses be recognized
in the same period in which the revenue generated by these expenses is recognized.
The amount presented as an expense in the income statement for income taxes may be called
income tax provision, income tax expense, provision for income taxes
The current liability representing amounts owed to taxing authorities is called
income taxes payable
Brighton Corporation buys an office building for $350,000, paying $30,000 in cash and financing the remainder with a note payable. The journal entry for this transaction would
increase assets by $320,000
A decrease in the A/R balance under the indirect method would
increase cash flow from operating activities
Joe Carie, head accountant, is using the indirect method and the account balance from the balance sheet and income statement to prepare a statement of cash flows. He notices that the Retained Earnings account increased from the beginning of the year. This information is used to
increase cash flow from operations as is signifies a net income
Joe Carie, head accountant, is using the indirect method and the account balance from the balance sheet and income statement to prepare a statement of cash flows. He notices that the Retained Earnings account increased from the beginning of the year. This information is used to
increase cash flow from operations as it signifies a net income.
If the market interest rate decreases, the present value of fixed-rate bond cash flows
increases
At the time a company receives the proceeds of a loan collateralized by its receivables, the company
increases its liabilities and assets
The method of preparing the statement of cash flows used by the majority of firms is
indirect method
Long-lived assets that do not have physical substance are___ assets
intangible
The calculated misapplication of GAAP such as capitalizing an amount when it should be expensed is known as
intentional errors
Use of the temporal method of translating financial statements will not generate a discrepancy between the change in the inventory amount presented in the balance sheet and the cash flow statement because
inventory is always translated at the exchange rate in effect when it was purchased, and the USD of inventories isnot adjusted for changes in the exchange rate.
Under ASC Topic 606 for revenue recognition, these are factors of the principla/agent determination
inventory risk, credit risk, control of prices of the goods or services.
Cash flows arising from the acquisitions and divestitures of other companies are cash flows from
investing activities
A decrease in prepaid expenses
is added to accrual earnings to obtain operating cash flows using the indirect method.
An increase in prepaid expenses
is deducted from accrual earnings to obtain operating cash flows using the indirect method
A bond would sell at a discount when the rate demanded by investors
is greater than the stated rate
A bond would sell at a premium when the rate demanded by investors
is less than the stated rate
The net realizable value of a company's accounts receivable
is reported on the balance sheet
A debenture
is supported by the firm's general creditworthiness
Which of the following are true of the LIFO reserve?
it addresses the issue of comparibility between LIFO and FIFO, is required by the SEC, and must be disclosed at each balance seet date.
Which of the following are true for start-up companies with no history of profitability?
it is common for them to have not tax benefit in the income statement if the firm's early years AND for them to record valuation allowances for alarge portion or all of the company's deferred tax assets
If a firm wishes to change their inventory valuation method but does not have the detailed records needed to retroactively restate prior periods' results,
it is impracticable to apply a change in accounting principle retrospectively.
Deferred tax asset valuation allowance
it is required when it is more likely than not that some portion of a deferred tax asset will not be realized, AND it shall be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized
Which of the following are true of taxable income
it is the income for tax purposes AND is governed by the "constructive receipt/ability to pay" doctrine
A bank recognizes a gain upon securitizing receivables because
it receives proceeds in excess of the book value of the receivables
If an inventory error is discovered during the reporting year,
it should be corrected immediately
Cash is always measured for the balance sheet at
its current market value.
A perpetual inventory system
keeps a running record of the amount of inventory on hand
LIFO____ can have a large impact on reported earnings due to a mismatching of LIFO layers carried at "old" costs with current period revenues
liquidation.
Adoption of ASC Topic 606 related to revenue recognition represents a
mandatory change in accounting principle
Adoption of ASC Topic 606 related to revenue recognition represents a
mandatory change in accounting principle.
A bond price is determined by discounting contractual cash flows by the
market rate
A type of income statement that subdivides income in order to facilitate forecasting is called
multiple-step income statement
Balance sheets developed under U.S. GAAP
must list assets from most liquid to least liquid
Balance sheets developed under US GAAP
must list assets from most liquid to least liquid.
GAAP establishes specific criteria for the treatment of leases under ASC 842. If any of the criteria are met, the lessee
must treat the lease as a finance lease
The amount that would be received if the assets were sold in the used asset market is the
net realizable value
Components of gross profit include
net sales and cost of goods sold
Publicly traded companies must report earnings per share (EPS) numbers
on the face of their income statements
If accounts receivable are factored and the transfer qualifies as a sale, the proceeds are shown as a(n)
operating cash inflow.
The additional paid in capital account is reported on the balance sheet at the
original sales price of the stock MINUS the par value
The Additional Paid-In-Capital account is reported on the balance sheet at the
original sales price of the stock minus the par value.
Hargren Publishing offers its Accounting textbooks as e-texts through its online homework management system. Purchase of an access code provides the student with access to the e-text and online learning materials for six months. During that time, students have access to updates to the text and learning materials. Hargren should recognize revenue for purchases of access codes
over the six month period during which the customer has access.
Hargren Publishing offers its Accounting textbooks as e-texts through its online homework management system. Purchase of an access code provides the student with access to the e-text and online learning materials for six months. During that time, students have access to updates to the text and learning materials. Hargren should recognize revenue for purchases of access codes
over the six-month period during which the customer has access
Regulation Fair Disclosure (Reg FD)
passed by the SEC, limits what management can say in private conversations with analysts and investors, and helps level the playing field between individual and institutional investors.
The inventory method that keeps a running record of the amount of inventory on hand is known as the
perpetual system
The FASB is expected to serve a diverse constituency including
preparers, auditors, users of financial statements, and the public interest.
A company's finanial statements
present a picture of the company at a moment in time, describe changes that took place over a period of time, and reflect the events that effect the company.
Mackintosh recognized warranty expense equal to five percent of net sales revenue generated on the sale of its newest product. One year after introducing the new product, Mackintosh determines that significantly fewer units than predicted were returned by customers for repair or replacement and that this justifies an accounting change. Mackintosh should account for this change
prospectively
Mackintosh recognized warranty expense equal to five percent of net sales revenue generated on the sale of its newest product. One year after introducing the new product, Mackintosh determines that significantly fewer units than predicted were returned by customers for repair or replacement and that this justifies an accounting change. Mackintosh should account for this change
prospectively.
Using a perpetual inventory system
purchases are debited to the inventory account
Inventory that consists of components that will be used in a completed product is called
raw materials
Examples of variable consideration include
rebates, performance bonuses, and volume discounts
Examples of variable consideration include
rebates, performance bonuses, volume discounts.
When a company uses its receivables as collateral for a loan, the company
recognizies a liability for the cash received from the bank
All of following could cause net accounts receivable to grow more quickly than sales
recording fictitious credit sales, underestimating the allowance for uncollectibles, and selling more merchandise on credit instead of cash. NOT→ making customers pay their bills more quickly
A periodic system of inventory
reduces record keeping
Book Income
reflects increases ia firm's "well-offness" AND is income for financial reporting purposes
A _____-______ transaction occurs when a reporting entity enters into a transaction with individuals or other businesses that are in some way connect with it or its management or board of directors.
related-party
An example of an item that was excluded from accrual-basis income that affected operating cash flows include
rent received in advance, collections on account, and prepaid insurance.
Paying dividends to shareholders
represents a financing activity
The cumulative effect approach is allowed when there is a change in accounting principle if
retrospective restatement is not practicable, and a particular standard specifies that it be used.
Sew & More sells sewing machines and sewing supplies. The company recently ran a sales promotion on sewing machines that allowed customers to purchase a new sewing machine using store credit. The terms of the contract stated that customers would make 12 monthly payments that included a 6% annual interest rate. On the date of each sale, Sew & More should record
revenue equal to the sales price of the sewing machine and a receivable for the same amount.
When receivables are bundled and transferred to another organization that issues securities collateralized by the transferred receivables, the arrangement is defined as
securitization
Marketing costs like advertising and sales commissions are
selling expenses
In a factoring, a company
sells its receivables
Lease contracts are classified in these categories
short-term leases, financing leases, and operating leases
If sales terms, customer creditworthiness, and accounting methods remain constant, the percentage change in sales and the percentage change in accounts receivable
should be about equal
The use of perpetual inventory systems is preferred where a:
small number of expensive inventory units exist
The tax rate for corporations set by the law is the
statutory tax rate
The allowance for credit losses account is
subtracted from gross accounts receivable
Under the indirect method, the gain on sale of equipment is
subtracted from the net income to arrive at cash flow from operating activities.
Which of the following are true regarding the impact on a firm's cash flow?
tax choices affect a firm's cash flow AND financial reporting choices do not affect firm's cash flow
Which of the following are true regarding the impact on a firm's cash flow
tax choices affect the amount of a firm's cash flow AND financial reporting may affect a firm's cash flow statement, but not the amount of cash flow
Revision restatements differ from reissuance statements in that revision restatements address misstatements
that are less severe than those required reissuance restatements
Revision restatements differ from reissuance restatements in that revision restatements address misstatements
that are less severe than those requiring reissuance restatements
Once an impairment loss has been recognized on an asset
that asset cannot be later written back up if the fair value recovers
Current U.S. GAAP is found in
the Accounting Standards Codification
Which of the following are reasons that the overwhelming majority of public companies use the indirect method of preparing cash flow statements?
the ID method characterizes cash flow in a way that many analysts find useful, and relies exclusively on data already available in accrual accounts.
Not true regarding gift cards
the amount received from the sale of gift cards is required to be recognized when gift cards are sold
The net realizable value of a company's accounts receivable
the amount that the company expects to collect
Under the cumulative effect approach
the balance sheet as of the first day of the year the new standard is adopted is adjusted, and no prior-period financial statements are restated.
Under the accrual basis o accounting, expenses are based on
the consumption of resources
If consideration is received before a contract is identified and the consideration is nonrefundable, revenue may be recognized if
the contract has been terminated, there is no remaining obligation to transfer goods, goods have been delivered
Criteria for capitalization
the costs generate resources that will be used to satisfy performance obligations in the future, the costs relate to a specific contract, and the costs are expected to be recovered.
Expensed
the costs would have been incurred without the contract signing
The Retained Earnings account is comprised of
the cumulative earnings less dividends since the inception of the corporation
Under ASC Topic 606 for revenue recognition, a performance obligation is considered satisfied when control over the goods and services is transferred to the customer. Indicators that control has been transfered
the customer has accepted the goods and has physical possession of the goods, the customer is legally obligated to pay for the goods or services, and the customer has legal title of the goods.
Under Topic 606 for rev. recog. , a performance obligation is considered satisfied when control over the goods and services is transferred to the customer. These are indicators of tranfermation
the customer is legally obligated to pay for the g/s, the customer has accepted he g/s and has physical possession of the goods, and the customer has legal title of the goods.
Which of the following conditions would result in the capitalization of expenditures on long-lived assets
the efficiency of the asset is increased and the useful life of the asset is extended
Solar Corporation reported net income for the current year of $75,000. The company also reported a gain on the sale of equipment of $1,275 after receiving $5,000 in proceeds. They purchased equipment for $25,400. How does this affect the cash flow statement using the indirect method?
the gain on the sale of equipment of $1,275 is subtracted from net income to determine cash flows from operating activities.
Revenue for goods to be sold under a consignment arrangement of a manufacturer and a retail store should be recognized by the manufacturer when
the goods are sold by the retail store.
Operating lease expense is equal to
the lease expense that would have been recognized if classified as a short-term lease
Solar Corporation reported net income for the current year of $75,000. The company also reported a loss on the sale of equipment of $1,000 after receiving $5,000 in proceeds. They purchased equipment for $25,400. How does this affect the cash flow statement using the indirect method?
the loss on the sale of equipment of $1,000 is added back to net income to determine cash flows from operating activities.
The inventory turnover ratio can be distorted due to a LIFO reserve because
the numerator of the ratio, cost of goods sold, is predominantly current costs
Bill-and-hold arrangement
the reason is substantive, the product is ready for physical transfer, and the product is identified separately as belonging to the customer
Revenue is recognized when
the seller completes performance required by an agreement
Under Topic 606, revenue should be recognized for services when
the service performance obligation is satisfied
Under ASC Topic 606, revenue should be recognized for services when
the service performance obligation is satisfied.
The costs of providing financial information is ultimately borne by
the shareholders
All of the following represent aggressive revenue recognition practices
the shipment of merchandise has been delayed, on cosigned goods, and on merchandise that the company expects to be returned.
If a U.S. firm has a net deferred tax liability and its consolidated foreign subsidiary has a net deferred tax asset
the two amounts would not be netted against each other
Non-GAAP metrics are allowed provided
they are not given greater prominence than GAAP disclosures, they are not misleading, and any non-GAAP metric is accompanied by a reconciliation to the closest comparable GAAP metric.
Expenses
they are the expired costs or assets "used up" during the accounting period
Financial Information that is provided to decision makers before it loses its capacity to influence their decisions is
timely
Which of the following are functions of public and private sector regulatoroy agencies
to enforce financial reporting requirements and to establish financial reporting requirements.
For what reasons does management have incentive to meet analysts' expectations?
to increase stock price, to build credibility with capital markets, and to convey future earnings prospects to investors.
An analyst can estimate an average cash interest rate by dividing cash interest paid by
total average debt outstanding during the year
Which of the following are examples of related-party transactions?
trans between the reportying entity and members of its board of directors, and trans between subsidiares of a common parent.
Cost of inventory
transportation costs, storage costs, and production costs
Gains and losses that arise from a firm's continuing operations but that are not typical, recurring costs are called___ or ____ occurring items.
unusual or infrequently
In collateralized borrowing, a company
uses its A/R as collateral for a loan
Professional analysts need information on a company's future earnings and cash flow to evaluate audit vulnerabilities, to asses debt repaymebts proespects and to
value its equity securities
Assets held for sale
when assets are expected to be sold within one year of the balance sheet date, they should be classified as "held for sale"
Shareholders' and investors use financial statement information
when evaluating the performance of the company's top executives, to assess risk, dividend yield, and other firm attributes, and to help decide on a portfolio that meets their preferences
Inventory that contains the cost of units that have been started but not completed as of the balance sheet date is called
work-in-process inventory
True regarding revenue recognition for gift cards
"breakage" cn only be recognized as revenue to the extent that it is probable a reversal will not be necessary, "breakge" refers to the unused portion of gift card balances, and it is typical that a portion of gift card sales will go unused by customers
The Canon Corporation sells ten copiers to the Title Company on October 15 for $40,000. Canon delivers the copiers to Title on October 20 and Title pays $16,000, agreeing to pay the balance on November 10.Under the accrual basis, how much revenue should Canon recognize in November?
$0 - because it has not occurred yet.
Bennett Corporation sells kayaks. At the beginning of the year, there was one kayak in inventory costing $500. Bennett purchased another kayak during the period for $550 and then sold one of the kayaks for $750. How much was the goods available for sale during the period?
$1,050
The Canon Corporation sells ten copiers to the Title Company on October 15 for $40,000. Canon delivers the copiers to Title on October 20 and Title pays $16,000, agreeing to pay the balance on November 10.Under the cash basis, how much revenue should Canon recognize in October?
$16,000
The Canon Corporation sells ten copiers to the Title Company on October 15 for $40,000. Canon delivers the copiers to Title on October 20 and Title pays $16,000, agreeing to pay the balance on November 10. Under the cash basis, how much revenue should Canon recognize in October? Under the accrual basis, how much revenue should Canon recognize in November?
$16,000 ; $0
In January 2020, Livingston Publishing sells three-year subscriptions to its annual publication to 500 customers for $30 each. Publishing and distribution expenses each year are $3,000. Under the accrual basis of accounting, net income for 2021 is
$2000
Riley Corporation reports the following information regarding assets held for sale. Book value of the assets is $450,000, fair value of the assets is $325,000, and expected costs to sell the assets is $25,000. These assets would be shown on the balance sheet at
$300,000
Meyer Corporation has a two-year old truck that originally cost $80,000, has a remaining life of 8 years with no salvage value, and is depreciated using the straight-line method. Current resale of the truck is $65,000. Net realizable value of the truck is
$65,000
Solar Corporation reported net income for the current year of $75,000. They reported depreciation expense of $12,575. Cash flow from operating activities is
$87,575.
