ACCT Final
Which of the following is true about accounts payable? 1. Accounts payable are also called trade accounts payable. 2. Accounts payable are generally interest-bearing. 3. Accounts payable are generally recorded upon receipt of the purchased goods.
1 & 3
Earnings per share (EPS) 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.
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.
Accumulated other comprehensive income
A separate category in stockholders' equity to record gains and losses that bypass the income statement.
Which of the following may be a current liability?
All of these answers are correct.
Depreciation
Allocation of an asset's cost over its useful life
Amortization
Allocation of the cost of intangible assets over their useful lives
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
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 property, plant, and equipment (PP&E) initially recorded?
At Cost
Which of the following is an example of a tangible asset classified as property, plant, and equipment (PP&E)?
Buildings and Land
The _______________ is the period of time during which a company must capitalize interest. It begins with the presence of three conditions: Expenditures for the asset have been ________. Activities that are necessary to get the asset ready for its intended use are __ __________. Interest cost is being _________.
Capitalization Period, made, in progress, incurred.
Amortization
Cost allocation of intangible assets
Depletion
Cost allocation of natural resources
Depreciation
Cost allocation of property, plant, and equipment
Capital Expenditure
Costs incurred to acquire or improve long-term assets
Which of the following is NOT a characteristic of property, plant, and equipment (PP&E)?
Decreases in value over time
Journal entry for the Loss on impairment
Determine by subtracting the Fair value from the book value
Which of these is not a depreciation method?
Double-Line Method
Which of the following illustrates the recoverability test?
Expected future cash flows > Carrying value of intangible asset = No impairment
An investor has a long-term investment in stocks. Regular cash dividends received by the investor are recorded as
Fair Value, Method Equity Method Income, A reduction of the investment
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
Which of the following is a contract-related intangible asset?
Franchise
Which of the following is not reported as part of income from continuing operations?
Goodwill
Companies should test indefinite life intangible assets at least annually for
Impairment
The _______________ is the amount by which the carrying amount of the asset exceeds its fair value
Impairment loss
Which of the following is included in the calculation of weighted average accumulated expenditure?
Interest costs
Which of the following is not considered a part of the definition of a liability?
Its liquidation is reasonably expected to require the use of existing resources classified as 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
Which intangible assets are amortized?
Limited-Life, Yes Indefinite-Life, No
What is the relationship between current liabilities and a company's operating cycle?
Liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if less).
What does MACRS stand for?
Modified Accelerated Cost Recovery System
Book Value
Original Cost - Accumulated Depreciation
Depreciable Base
Original Cost - salvage value
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 equipment (PP&E)?
Periodic Maintenance Costs
Which characteristic is not possessed by intangible assets?
Physical existence
When recording the issuance of preferred stock, the amount received is credited to which account?
Preferred Stock
Impairment
Recognition of a decrease in the value of an asset
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.
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
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
Book Value
The carrying value of an asset on the balance sheet
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
Par value
The nominal value per share of capital stock
Capitalization period
The period during which a company must capitalize interest
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
How is the cost of property, plant, and equipment (PP&E) allocated over its useful life?
Through Depreciation
What is the main purpose of recording the issuance of stock?
To provide a record of the company's capital structure and ownership interests.
What is the main purpose of the statement of stockholders' equity?
To provide information about the changes in the company's equity accounts during a specific period.
A special assessment by the municipality for sidewalks and a drainage system would be included in the cost of land.
True
Double-Declining-balance depreciation and sum-of-years'-digit depreciation methods are referred to as accelerated depreciation methods.
True
If an industrial firm uses the units-of-production method for computing depreciation on its only plant asset, factory machinery, the credit to accumulated depreciation from period to period during the life of the firm will
Vary with Production
A measure used in determining the amount of interest that can be capitalized. Computed by weighting construction expenditures by the amount of time (e.g., fraction of a year) that a company can incur interest cost on the expenditure.
Weighted-Average Accumulated Expenditures
Before the amount of the depreciation charge can be computed, three basic questions must be answered. Which option below is not included in the basic questions to ask?
What method of cost apportionment is best for this asset?
Total stockholders' equity represents
a claim against a portion of the total assets of a company
Compensation expense resulting from a compensatory stock option plan is generally
allocated to the periods benefited by the employee's required service.
Redeemable preferred stock is reported
as a liability
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.
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
Interest costs during construction are ______ as part of the cost of long-term assets.
capitalized
The payout ratio is calculated by dividing
cash dividends by net income less preferred dividends.
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.
If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a
credit to interest expense
Complex capital structure
exists whenever a company's capital structure includes dilutive securities.
In accounting for plant 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
Costs incurred internally to create intangibles are
expensed as incurred
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
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.
Recoverability test
is determined by comparing the Book Value to the Future Cash Flow
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 a requirement for qualifying assets?
limited useful life
Trademarks, newspaper mastheads, and internet domain names are all examples of
marketing-related intangible assets.
Convertible bonds
may be exchanged for equity securities.
Liabilities are
obligations arising from past transactions and payable in assets or services in the future.
Stock warrants outstanding should be classified as
paid-in capital
"Gains" on sales of treasury stock (using the cost method) should be credited to
paid-in capital from treasury stock.
Wriglee, Inc. went to court this year and successfully defended its patent from infringement by a competitor. The cost of this defense should be charged to
patents and amortized over the remaining useful life of the patent.
Plant assets purchased in exchange for a zero-interest-bearing note should be accounted for at the:
present value of the note
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 depreciation method was used?
sum-of-the-years
If an asset is sold at a gain
the book value of the asset is less than the proceeds received from the sale.
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.
In accounting for compensated absences, the difference between vested rights and accumulated rights is that
vested rights carry a stipulated dollar amount that is owed to the employee; accumulated rights do not represent monetary compensation.
