ACCT 306 Final
What is a contingency?
An existing situation where uncertainty exists as to possible gain or loss that will be resolved when one or more future events occur or fail to occur.
Which of the following statements is true regarding the receipt of a refundable deposit?
Cash is debited and Refundable Deposit Liability is credited
Which of the following is true of depreciation accounting?
It is not a matter of valuation, It is part of matching revenues and expenses, and It is the process of cost allocation
Which intangible assets are amortized?
Limited Life- Yes Indefinite Life- No
The date on which to measure the compensation element in a stock option granted to a corporate employee ordinarily is the date on which the employee
is granted the option
A contingent liability
is the result of a loss contingency.
Depletion expense
is usually reported as cost of goods sold when the resource is sold.
Treasury shares are shares
issued but not outstanding
Fences and parking lots are reported on the balance sheet as
land improvements
For the composite method, the composite
life is the total depreciable cost divided by the total annual depreciation.
The recoverability test is used to determine any impairment loss on which of the following types of intangible assets?
limited life intangibles
Under current accounting practice, intangible assets are classified as
limited-life or indefinite life
A dividend which is a return to stockholders of a portion of their original investments is a
liquidating dividend
Which of the following disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements?
liquidation preferences
Which of the following characteristics do intangible assets possess?
long-lived
An objective of the statement of cash flows is to
provide information about the operating, investing, and financing activities of an entity during a period.
The term "depreciable base", or "depreciation base", as it is used in accounting, refers to
the total amount to be charged (debited) to expense over an asset's useful life
Usually, companies compute depletion for accounting purposes using a
the units-of-production method
Which of the following does not describe intangible assets?
they are financial instruments
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
In computing the weighted-average number of shares outstanding, when a stock dividend or stock split occurs during the period, the additional shares are
considered outstanding at the beginning of the earliest year reported
The right granted to all authors, painters, musicians, sculptors, and other artists for their creations and expressions is termed as a
copyright
The cost of land purchased as a building site does not include
costs of improvement with limited lives
The interest rate written in the terms of the bond indenture is known as the
coupon rate, nominal rate, or stated rate
Where is debt callable by the creditor reported on the debtor's financial statements?
current liabilities
The ratio of current assets to current liabilities is called the
current ratio
Which of the following types of intangible assets results from interactions and relationships with outside parties?
customer-related intangible assets
With regard to cash dividends, an entry is not made on the
date of record
The term used for bonds for which the principal is unsecured is
debenture bonds
In calculating diluted earnings per share, dividends on nonconvertible cumulative preferred stock should be
deducted from net income whether declared or not
Dilutive convertible securities must be used in the computation of
diluted earnings per share only
Stockholder's equity is generally classified into two major categories which are
earned capital and contributed capital
The rate of return earned by bondholders is called the
effective rate
The return on total assets measures
efficiency, profitability, and liquidity
The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is the
either the proportional method or the incremental method
Which of the following best describes the accounting for assurance-type warranty costs?
expensed based on an estimate in year of sale
Which of the following is a contract-related intangible asset?
franchise
Depreciation is normally computed on the basis of the nearest
full month and to the nearest dollar
When boot is involved in an exchange having commercial substance,
gains or losses are recognized in their entirety
In a business combination, companies record identifiable intangible assets that they can reliably measure. All other intangible assets, too difficult to identify or measure, are recorded as:
goodwill
Asset turnover is a measure of
how efficiently a company uses its assets to generate sales
Which of the following principles best describes the current methods of accounting for research and development costs?
immediate recognition as an expense
Companies should test indefinite life intangible assets at least annually for:
impairment
Times interest earned is computed by dividing
income before income taxes and interest expense by interest expense.
Bonds that pay no interest unless the issuing company is profitable are called
income bonds
All of the following accounts are included in both the current ratio and the acid-test ratio except
inventory
Termination of an asset's service due to theft or fire is referred to as
involuntary conversion
The activity method of depreciation
is a variable charge approach
What does the current ratio reveal about a company?
the company's liquidity
Cash equivalents are
- treasury bills, commercial paper, and money market funds purchased with excess cash - investments with original maturities of three months or less - readily convertible into known amounts of cash
The notes to the financial statements should include information about acquired intangible assets, and aggregate amortization expense for how many succeeding years?
5
The first step in preparing the statement of cash flows requires the use of information included in which comparative financial statements?
Balance sheets
Which of the following items is not included in an employer's payroll tax expense?
Federal income taxes
Which of the following intangible assets should be reported as a separate item on the balance sheet?
Goodwill
Due to the importance of earnings per share information, it is required to be reported by all Public Companies Nonpublic Companies
Public Companies-Yes Nonpublic Companies- No
Which of the following taxes does not represent a common employee payroll deduction?
State unemployment taxes
Unearned revenue results from which of the following situations?
Target sells gift cards
Which of the following is an advantage of a restricted-stock plan?
The stock never becomes completely worthless
How do you determine the acid-test ratio?
The sum of cash, short-term investments and net receivables divided by current liabilities.
In which of the following situations would a cost incurred after an asset's acquisition be capitalized?
The useful life of the asset is increased.
When is a contingent liability recorded?
When the future events are probable to occur and the amount can be reasonably estimated.
"In-substance defeasance" is a term used to refer to an arrangement whereby
a company provides for the future repayment of long-term debt by placing purchased securities in an irrevocable trust
Delta Darlings Salon sells gift cards for its services. Based on experience, the company estimates that 25% of the gift cards will not be redeemed. The entry to record the redemption of a gift card will include
a debit to Unearned Gift Card Revenue and credits to Service Revenue and Gift Card Breakage Revenue
Cumulative preferred dividends in arrears should be shown in a corporation's balance sheet as
a footnote
A mortgage note payable is
a promissory note secured by a pledged title to the property
The primary purpose of the statement of cash flows is to provide information
about the cash receipts and cash payments of an entity during a period
Which of the following is not a major characteristic of a plant asset?
acquired for resale
Example of existing legal obligations that require recognition of an Asset Retirement Obligation (ARO) include the following except:
acquisition costs of an oil or gas property
The balance in Common Stock Dividend Distributable should be reported as a(n)
addition to capital stock
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 sets of conditions would give rise to the accrual of a contingency under the current generally accepted accounting principles?
amount of loss is reasonably estimable and the likelihood of occurrence is probable
Premium on bonds payable is
an adjunct account
A project financing arrangement refers to
an arrangement where a company creates a special-purpose entity to perform a special project.
Accrued liabilities are disclosed in financial statements by
appropriately classifying them as regular liabilities in the balance sheet
Which of the following is the proper way to report some gain contingencies?
as a disclosure only
Redeemable preferred stock is reported
as a liability
Intangible assets are reported on the balance sheet
as a separate classification in the assets section
Long-term debt that matures within one year and is to be converted into stock should be reported
as noncurrent and accompanied with a note explaining the method to be used in its liquidation
When computing diluted earnings per share, convertible bonds are
assumed converted only if they are dilutive
Which of the following represents the total number of shares that a corporation may issue under the terms of its charter?
authorized shares
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
A change in estimate should
be handled in current and future periods
Bonds for which the owners' names are not registered with the issuing corporation are called
bearer bonds
The covenants and other terms of the agreement between the issuer of bonds and the lender are outlined in the
bond indenture
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
Common stock is the only class of stock outstanding in Manley Corporation. Total stockholders' equity divided by the number of common shares outstanding is called
book value per share
When a company enters into what is referred to as off-balance-sheet financing, the company
can enhance the quality of the balance sheet and permit credit to be obtained more readily and at a less cost
The payout ratio is calculated by dividing
cash dividends by net income less preferred dividends
The numerator of the acid-test ration consists of
cash, marketable securities, and net receivables
When a plant asset is acquired by the issuance of common stock and the fair value of the plant asset is not clearly determinable, the cost of the plant asset is properly measured by the
market price of the stock
Which of the following costs are capitalized for self-constructed assets?
materials, labor, and overhead directly related to construction only
Convertible bonds
may be exchanged for equity securities
Research and development costs
may result in the development of a patent.
The return on total assets is computed by dividing
net income by average total assets.
The rate of return on common stock equity is calculated by dividing
net income less preferred dividends by average common stockholder's equity
The asset turnover is computed by dividing
net sales by average total assets.
When a note payable is exchanged for property, goods, or services, the stated interest rate is presumed to be fair unless
no interest rate is stated, the stated interest rate is unreasonable, and the stated face amount of the note is materially different from the current cash sales price for similar items or from the current fair value of the note
Liabilities are
obligations arising from past transactions and payable in assets or services in the future.
Each of the following is a physical factor affecting depreciation except
obsolescence
Economic factors that shorten the service life of an asset include
obsolescence
Which of the following is not an acceptable treatment for the representation of current liabilities?
offsetting current liabilities against assets that are to be applied to their liquidation
Cash dividends are paid on the basis of the number of shares
outstanding
What are compensated absences?
paid time off
Stock warrants outstanding should be classified as
paid-in capital-stock warrants.
Stock that has a fixed per-share amount printed on each stock
par value stock
The recoverability test is used to determine whether impairment has occurred on which of the following intangible assets?
patent
Which of the following is a type of technology-related intangible asset?
patent
Which of the following would not be considered a remediation cost?
permit costs to acquire landfill site
Which characteristic is not possessed by limited-life intangible assets?
physical existence
An employee's net pay is determined by gross earnings minus amounts for income tax withholdings and the employee's
portion of FICA taxes and unions due
Which of the following terms is associated with recording a contingent liability?
probable
In a service-type warranty, warranty revenue is
recognized equally over the warranty period
When computing diluted earnings per share, convertible securities are
recognized only if they are dilutive
Which of the following features of preferred stock makes it more like debt rather than equity?
redeemable
Accounting for product warranty costs under an assurance-type warranty
represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale
The cumulative feature of preferred stock
requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.
Which of the following costs incurred internally to create an intangible asset is generally expensed?
research and development costs
Which of the following would not be capitalized as an intangible asset?
research and development expenditures
The rights of common stockholders generally include the right to
share proportionately in any new issues of preferred stock
A general description of the depreciation methods applicable to major classes of depreciable assets
should be included in corporate financial statements or notes thereto
Under what condition is an employer required to accrue a liability for sick pay?
sick pay benefits vest
The face value of bonds is also called each of the following except
stated value
In which of the following transactions is retained earnings capitalized?
stock dividend
Which type of dividends do not reduce stockholder's equity?
stock dividends
Which of the following methods of amortization is normally used for intangible assets if a pattern of use cannot be determined?
straight-line
When additional consideration is offered to convertible bondholders to encourage conversion, the payment is called a
sweetener
Which of the following principles best describes the conceptual rationale for the methods of matching depreciation expense with revenues?
systematic and rational allocation
Corporations issue convertible debt for two main reasons. One is the desire to raise equity capital that, assuming conversion, will arise when the original debt is converted. The other is
that many corporations can obtain debt financing at lower rates
When computing the amount of interest cost to be capitalized, the concept of "avoidable interest" refers to
that portion of total interest cost that would not have been incurred if expenditures for the asset construction had not been made
A loss contingency should be accrued when
the amount of the loss can be reasonably estimated and it is probable that an asset has been impaired or a liability has been incurred
The period of time during which interest must be capitalized ends when
the asset is substantially complete and ready for its intended use
The book value of a plant asset is
the asset's acquisition cost less the total related depreciation recorded to date.
The purpose of the times interest earned ratio is to indicate
the company's ability to meet interest payments as they come due
The total interest recorded on a zero-interest-bearing note is equal to
the difference between the maturity value of the note and the cash proceeds received
In a corporate form of business organization, legal capital is best defined as
the par value of all capital stock issued
When a patent is amortized, the credit is usually made to
the patents account
Plant assets purchased on long-term credit contracts should be accounted for at
the present value of the future payments
In accounting for oil and gas reserves, larger international companies tend to use
the successful-efforts concept
The debt to assets ratio is computed by dividing
total liabilities by total assets.
Which of these is not part of the historical cost of an asset?
training costs
