Accounting Final Exam
Capital Expenditure
Costs incurred to acquire or improve long-term assets
Capital expenditure
Costs incurred to acquire or improve long-term assets
trading securities
Debt securities are bought and held primarily for sale in the near term to generate income on short-term price differences. Companies report trading securities at fair value at each reporting date, with unrealized holding gains and losses recognized as net income. Interest is recorded when earned.
available-for-sale securities
Debt securities not classified as held-to-maturity or trading securities. Companies report available-for-sale securities at fair value, but do not report changes in fair value as part of net income until after they sell the security. Interest on available-for-sale securities is recorded when earned. Unrealized holding gains and losses on available-for-sale debt securities are recognized as other comprehensive income and as a separate component of stockholders' equity.
Held-to-maturity securities
Debt securities that the company has the positive intent and ability to hold to maturity. Companies report held-to-maturity securities at amortized cost, recognize interest when earned, and do not recognize unrealized holding gains or losses.
Which of the following is NOT a characteristic of PP&E?
Decreases in value over time
Cost allocation of natural resources
Depletion
Cost allocation of PP&E
Depreciation
Journal entry for the loss on impairment
Determine by subtracting the fair value from the book value
a corporation issues bonds with detachable warrants. the amount to be recorded as paid-in capital is preferably
based on the relative market values of the two securities
Which of these is not a depreciation method?
Double-Line method
In accounting for PP&E assets, which of the following outlays made after acquisition should be fully expensed in the period the expenditure is made?
Expenditure made to maintain an existing asset so that it can function in the manner intended
When a plan asset is disposed of, the accounting records should be taken out of the asset account at cost and depreciation cost up to the date of disposal, and any gains or losses are not recognized because the asset is not on the books any longer.
FALSE
Cash or other assets received in an exvchange are referred to as "boot"
False
Debt securities include corporate bonds and convertible debt, but not U.S. government securities
False
Depreciation is based on the decline in the fair market value of an asset.
False
The rules used to account for impairments of limited-life intangible assets are different from the rules used to account for impairments of plant and equiptment
False
The units-of-production approach to depreciation is appropriate when depreciation is a function of time instead of activity.
False
True or False: Deferred payment contracts are recognized using the installment sales method.
False
When assets are acquired in exchange for a company's own stock, the best measure of cost is the historical cost of the stock issued
False
equity securities
Financial securities that represent ownership interests such as common, preferred, or other capital stock. They also includerights to acquire or dispose of ownership interests at an agreed-upon or determinable price, such as in warrants, rights, andcall or put options. The cost of equity securities includes the purchase price of the security plus broker's commissions andother fees incidental to the purchase.
The ___ is the amount by which the carrying amount of the asset exceeds its fair value
Impairment loss
The substitution of better asset for the one currently used.
Improvements (betterments)
Which of the following is NOT a requirement for qualifying assets?
Limited Useful Life
What does MACRS stand for?
Modified Accelerated Cost Recovery System
Charlie Parker, president of Spinners Company, has recently noted that depreciation increases cash provided by operations and therefore depreciation is a good source of funds. Do you agree?
No
Depreciable Base
Original Cost - Salvage Value
Book Value
Origional Cost- Accumulated Depreciation
A deferred payment contract involves delaying the ___ for goods or services until a later date.
Payment
Which of the following costs is typically NOT capitalized as part of property, plant, and equiptment?
Periodic maintenance costs
When recording the issuance of preferred stock, the amount received is credited to which account?
Preferred Stock
Which of the following represents the rights of preferred stockholders?
Preferred stockholders have priority in receiving dividends.
Impairment
Recognition of a decrease in the value of an assets
Restricted-stock plans
Restricted-stock plans transfer shares of stock to employees, subject to an agreement that the shares cannot be sold, transferred, or pledged until vesting occurs.
Dilutive securities
Securities that can be converted to common stock. Upon conversion or exercise by the holder, the dilutive securities reduce(dilute) earnings per share. Companies with dilutive securities report both basic EPS and diluted EPS in their income statements.
treasury stock
Stock repurchased by the company and held in its own treasury.
the conversion of bonds is most commonly recorded by the
book value method
the conversion of preferred stock is most commonly recorded by the
book value method
significant influence
The ability of an investor corporation to affect the operating and financial policies of an investee corporation, withoutpossessing legal control of the investee. Examples include representation on the board of directors, participation in policy-making processes, material intercompany transactions, interchange of managerial personnel, or technological dependency.
Amortized Cost
The acquisition cost of debt securities adjusted for the amortization of discount or premium, if appropriate. Amortized cost is the valuation amount companies use to account for held-to-maturity debt securities.
If an asset is sold at a gain
The book value of the asset is less than the proceeds received from the sale
Book value
The carrying value of an asset on the balance sheet
which of the following is true about accounts payable
both 1 and 3 are true
Grant date
The date at which a company grants stock options to employees. Public companies estimate the options' fair value as of that date, using an option-pricing model and any adjustments needed for unique factors. No adjustments occur after the grant date in response to subsequent changes (up or down) in the stock price.
Basic EPS
The earnings per share for a simple capital structure. A company with a complex capital structure reports both basic EPS and diluted EPS amounts on the face of its income statement.
Fair value
The estimated value of an asset in an arm's length transaction
Profit
The financial gain made in a transaction or business venture after deducting all expenses.
Revenue
The income generated from the sale of goods or services.
Interest
The money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt.
par value
The nominal value per share of capital stock.
time value
The option's value over and above its intrinsic value, reflecting the possibility that the option has a fair value greater than zero.
Capitalization period
The period durning which a company must capitalize interest
Fair Value
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Revaluation
The process of adjusting the carrying value of an asset to its fair value
Improvements (betterments)
The substitution of a better asset for the one currently used
Accumulated Depreciation
The total depreciation recognized on an asset since its acquisition
what is the main purpose of recording the issuance of a stock
To provide a record of the company's capital structure and ownership interests.
the payout ratio is calculated by dividing
cash dividends by net income less preferred dividends
total stockholders' equity represents
claims agains a portion of the total assets of a company
total stockholders' equity represents
claims against a portion of the total assets of a company
the residual interest in a corporation belongs to the
common stockholders
Investments in debt securities are generally recorded at
cost including brokerage and other fees.
A controlling interest occurs when one corporation acquires a voting interest of more than 50 percent in another corporation.
True
A special assessment by the municipality for sidewalks and a drainage system would be included in the cost of land
True
Companies always treat gains or losses from an involuntary conversion as comprehensive income
True
Companies report trading securities at fair value, with unrealized holding gains and losses reported in net income.
True
Depreciation is a means of cost allocation, not a mater of valuation.
True
Depreciation, depletion, and amortization all involve the allocation of the cost of a long-lived asset to expense.
True
Double-Declining-balance depreciation and sum-of-years-digit depreciation methods are referred to as accelerated depreciation methods
True
If the fair value of an unlimited life intangible other than goodwill is less than its book value, an impairment loss must be recognized
True
If the value of a patent is impaired because demand drops for the patented produce, is should be written down or written off in the period of the decline in demand.
True
The declining-balance method does not deduct the salvage value in computing the depreciation expense
True
True or False: Lump-sum purchases allocate the total cost among various based on their relative fair market values.
True
True or False: PP&E is initially recorded at cost?
True
intangible assets that result from interactions and relationships with outside parties are customer-related intangible assets
True
the cost of acquiring a customer list from another company is recorded as an intangible asset
True
A measure used in determining the amount of interest that can be capitalized. Computed by weighting construction expenditures by the amount of time that a company can incur interest cost on the expenditure
Weighted-average accumulated expenditures
Before the amount of depreciation charge can be computed, three basic questions must be answered. Which option below is not included in the base questions to ask?
What depreciation method will maximize net profit.
which of the following may be a current liability
all of the answers are correct
Which of the following is not correct concerning trading securities?
all of these choices are correct
compensation expense resulting from a compensatory stock option plan is generally
allocated to the periods benefited by the employee's required service
which of the following is reported as an operating expense
amortization expense
which of the following statements is true regarding an S corporation
an S corporation does not pay income tax
redeemable preferred stock is reported
as a liability
Debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses as other comprehensive income and as a separate component of stockholders' equity are
available-for-sale debt securities
investor
A corporation that acquires an interest in the common stock of another corporation (investee) for investment purposes. The percentage of the investee voting stock that is held by the investor, which determines the amount of influence the investor has over the investee, generally determines the accounting treatment for the investment.
EPS Earnings per Share is
A distilled and important income figure, calculated as net income minus preferred dividends (income available to commonstockholders), divided by the weighted-average common shares outstanding. Companies must disclose earnings per shareon the face of the income statement.
Dividend
A distribution of a portion of a company's earnings to its shareholders.
stock dividend
A dividend that is paid with additional shares of stock rather than in cash.
Weighted-average accumulated expenditures
A measure used in determining the amount of interest that can be capitalized
restricted-stock awards
A plan in which a company transfers stock to the employee at the grant date.
controlling interest
A relationship in which one corporation acquires a voting interest of more than 50% in another corporation. The investor corporation is referred to as the parent and the investee corporation as the subsidiary. Companies present the investment in the common stock of the subsidiary as a long-term investment on the separate financial statements of the parent.
accumulated other comprehensive income
A separate category in stockholders' equity to record gains and losses that bypass the income statement.
Loan
A sum of money that is borrowed and expected to be paid back with interest.
Stock
A type of investment that represents ownership in a company.
Depreciation
Allocation of an asset's cost over its useful life
Amortization
Allocation of the cost of intangible assets over their useful lives
Cost allocation of intangible assets
Amortiation
How is the issuance of common and preferred stock recorded on the balance sheet?
As an increase in both the Common Stock and Preferred Stock accounts.
Under the cost model, how is PP&E initially recorded?
At cost
Which of the following is an example of a tangible asset classified as property, plant, and equiptment?
Buildings and Land
The period of time durning which a company must capitalize interest
Capitalization period
Interest costs durning construction are ____ as part of the cost of long-term assets.
Capitalized
if bonds are issued between interest dates, the entry on the books of the issuing corporation could include a
credit to interest expense
Recoverability Test
determined by comparing the book value to the future cash flow
complex capital structure
exists whenever a company's capital structure includes dilutive securities.
which of the following illustrates the recoverability test
expected future cash flows > carrying value of intangible asset = no impairment
Cost incurred internally to create intangibles are
expensed as incurred
all dividends, expect for liquidating dividends, reduce the total stockholders' equity of a corporation
false
retained earnings represent the amount of profits distributed to the stockholders
false
which of the following is a contract-related intangible asset?
franchise
A company must account for a contract modification as a new contract if the
goods or services are distinct and the company has the right to receive the standalone price.
which of the following is not reported as part of income from continuing operations
goodwill
if bonds are issued at a premium and the effective interest method of amortization is used, interest expense in the earlier years will be
greater than if the straight-line method were used
Debt securities that are accounted for at amortized cost, not fair value, are
held-to-maturity debt securities.
The first step in the process for revenue recognition is to
identify the contract with customers.
The second step in the process for revenue recognition is to
identify the separate performance obligations in the contract.
companies should test indefinite life intangible assets at least annually for
impairment
Which of the following is included in the calculation of weighted average accumulated expenditure?
interest costs
potentially dilutive security
is a security which can be exchanged for or converted into common stock and therefore upon conversion or exercise could dilute (or decrease) earnings per share. Included in this category are convertible securities, options, warrants, and other rights.
A contract
is an agreement that creates enforceable rights and obligations.
Diluted earnings per share
is the amount of earnings for the period available to each share of common stock outstanding and to each share that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the reporting period.
Basic earnings per share
is the amount of earnings for the period available to each share of common stock outstanding during the reporting period.
which of the following is not considered a part of the definition of a liability
its liquidation is reasonable expected to require the use of existing resources classifies as a current assets or create other current liabilities
The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were
less than book value
What is the relationship between current liabilities and a company's operating cycyle
liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if less)
trademarks, newspaper mastheads, and internet domain names are all examples of
marketing-related intangible assets
convertible bonds
may be exchanged for equity securities
liabillities are
obligations arising from past transactions and payable in assets or services in the future
stock warrants outstanding should be classififed as
paid-in capital
"gains" on sales of treasury stock should be credited to
paid-in capital from treasury stock
Which characteristic is not possessed by intangible assets
physical existence
Plant assets purchased in exchange for a zero-interest-bearing note should be accounted for at the
present value of the note
The last step in the process for revenue recognition is to
recognize revenue when each performance obligation is satisfied.
The converged standard on revenue recognition
recognizes and measures revenue based on changes in assets and liabilities.
The issuance for cash of no-par-value common stock at a price in excess of the stated value of the common stock is accounted for as follows except:
retained earnings is debited
one factor that is not considered in determining the useful life of an intangible asset is
salvage value
Equity securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses are
securities where a company has holdings of less than 20%.
the face value of bonds is also called each of the following except
stated value
A plant asset has a cost of $40,000 and a salvage value of $10,000. The asset has a three-year life. If depreciation in the third year amounted to $5,000, which deprection method was used?
sum-of-the-years'-digits
The book value of a plant asset is
the asset's acquisition cost less the total related depreciation recorded to date
How is PP&E allocated over its useful life?
through depreciation
what is the main purpose of the statement of stockholders' equity
to provide information about the changes in the company's equity accounts durning a specific period
A corporation is incorporated in only one state regardless of the number of states in which it operates
true
a corporation is incorporated in only one state regardless of the number of states in which it operates
true
If an industrial firm uses the units-of-production method of computing depreciation on its only plant asset, factory machinery, the credit to accumulated depreciation from period to period durning the life of the firm will
vary with production
