Exam #2

Which of the following assets is always considered a separate lease component in a lease, unless the impact on the financial statements of not separating it is insignificant? A) Land B) services associated with the lease C) fully depreciated assets D) all of the above

A) Land

Under the equity method, cash dividends received by the investor from the investee should be treated as _________. A) an adjustment to other comprehensive income B) a reduction in the investment account C) an increase in the investment account D) dividend income

B) a reduction in the investment account

which of the following statements best describes the effective tax rate? A) it is legally imposed rate in a given taxing jurisdiction B) it can be calculated by dividing income tax expense by book income before taxes C) it changes annually based on provisions from congress D) it is calculated as book income divided by taxable income

B) it can be calculated by dividing income tax expense by book income before taxes

_______ differences between book income and taxable income results in an effective tax rate that differs from the statutory tax rate A) temporary B) permanent C) short-term D) long-term

B) permanent

In cases where the standalone price is highly variable or uncertain, the lessee may use what type of method for determining standalone prices? A) market method B) residual method C) component method D) both A and C are correct

B) residual method

when a company pays taxes that were previously recorded as a deferred tax liability, the temporary difference _________. A) originates B) reverses C) increases D) decreases

B) reverses

If the lessor meets any one of the five group 1 criteria, then the lessor classifies the lease as an ______. if the lessor meets both of the group 2 criteria, but none of the group 1 criteria, then the lessor classifies the lease as an ________. if the transaction does not meet either the group 1 or group 2 criteria, then the lessor classifies the lease as an _______. A) operating lease, direct finance lease, sales-type lease B) sales type lease, direct finance lease, operating lease C) standalone price lease, sales type lease, direct finance lease D) direct finance lease, operating lease, sales type lease

B) sales type lease, direct finance lease, operating lease

In which of the following instances would a company most likely choose the carryforward option for a net operating loss? A) the company expects lower tax rates in the future compared to the past B) the company expects higher tax rates in the future compared to the past C) the company expects lower earnings in the future compared to the past D) the company expects higher losses in the future compared to the past

B) the company expects higher tax rates in the future compared to the past

all of the following are key questions that must be addressed when accounting for investments in debt and equity securities except which one? A) how long does management intend to hold the investment B) is the fair value of the equity investment readily determinable C) how is the return on equity impacted by this investment D) how much control does the investor have over the investee company for this equity investment

C) how is the return on equity impacted by this investment

Olympics Inc. recorded a dividends received deduction on their tax return this year. What​ (if any)​ book-tax difference will​ result? A) temporary difference; book income less than taxable income B) permanent difference; book income less than taxable income C) permanent difference; book income greater than taxable income D) temporary difference; book income greater than taxable income

C) permanent difference; book income greater than taxable income

Dante Inc. reported fines and penalties on their income statement this year. What​ (if any)​ book-tax difference will​ result? A) temporary difference; book income less than taxable income B) permanent difference; book income greater than taxable income C) permanent difference; book income less than taxable income D) no difference; fines and penalties are tax deductible

C) permanent difference; book income less than taxable income

Where are changes in fair value for available for sale securities reported? A) as operating income or loss on the income statement B) as income or loss from peripheral activities on the income statement C) as a component of accumulated other comprehensive income on the balance sheet D) as a prior period adjustment to retained earnings on the balance sheet

C) as a component of accumulated other comprehensive income on the balance sheet

when a company depreciates a fixed asset at a faster rate for tax purposes than book purposes, this creates a A) deferred tax asset B) higher tax basis than book basis of assets in the early years C) deferred tax liability D) lower tax basis than book basis of liabilities in the early years

C) deferred tax liability

Dowell Corporation decided that an investment originally classified as available for sale should be reclassified as held to maturity. Dowell would ________. A) not reclassify the investment B) reclassify the investment as held to maturity and recognize all unrealized gains and losses in net income C) reclassify the investment as held to maturity and record the fair value of the investment as of the date reclassification as its amortized cost basis D) reclassify the investment as held to maturity, but recognize no income or loss

C) reclassify the investment as held to maturity and record the fair value of the investment as of the date reclassification as its amortized cost basis

) Ryan Corporation purchased 10,000 shares of Acme Stock. It plans to hold them for a short time and then sell them at a gain. It should classify these securities as ________. A) available for sale securities B) held-to-maturity securities C) trading securities D) minority securities

C) trading securities

As of 12/31/17, XYZ Inc. had Available-for-Sale debt investments with a fair value of $522,000, an amortized cost of $535,000, and a debit balance in the Fair Value Adjustment - Available for Sale Debt Investments account of $7,500. What is the amount of gain or loss reported by XYZ related to these available-for-sale debt investments and how should it be reported? A) unrealized loss of 6,500, reported as part of other comprehensive income B) unrealized loss of 20,500, reported as part of net income C) unrealized loss of 20,500, reported as part of other comprehensive income D) unrealized loss of 6,500, reported as part of net income

C) unrealized loss of 20,500, reported as part of other comprehensive income

the lessor would most likely prefer a ________ or ________ lease to an operating lease. nonoperating lease treatment would permit a financial service company lessor to remove heavy machinery and equipment, jet airlines, oceangoing vessels, and such from its balance sheet and replace it with the _______, a financial asset compatible with the nature if its business. in addition, the nonoperating lease results in the recognition of ________, rather than _________ revenue.

direct financing; sales type; net investment the lease; interest income; rent

In 2017, Squirrel Corp. recorded book income of $165,000. It has one temporary difference which relates to a $30,000 warranty expense that it recorded for book purposes, and no permanent differences. Squirrel anticipates satisfying this liability equally over the following two years. The current enacted tax rate is 36%. The enacted tax rates for the following years are 2017: 26%, 2018: 31%, 2019: 26% and 2020: 36%, respectively. Under U.S. GAAP, what deferred tax amount should Squirrel Corp. record for this temporary difference? A) $8,550 B) $7,800 C) $9,300 D) $10,050

A) $8,550

Bateman Enterprises invested in the bonds of Greater Glouster on January 1, 2015. These 10-year, $100,000 bonds pay interest of 3% every June 30 and December 31. The effective rate of interest for similar bonds on January 1 was 4%. What is the semi-annual interest payment received by Bateman for these bonds? A) 1,500 B) 3,000 C) 2,000 D) 4,000

A) 1,500

Kravitz corporation had income before taxes of 900,000 and a tax rate of 25%. included in the income are 70,000 in municipal bond interest and 10,000 in fines and penalties. there are no other book-tax differences. what is the net amount of kravitz book-tax difference? A) book income that is 60,000 greater than taxable income B) book income that is 70,000 greater than taxable income C) taxable income that is 10,000 greater than book income D) taxable income that is 60,000 greater than book income

A) book income that is 60,000 greater than taxable income

the ______ date is when the lease agreement is signed. the ______ date is the date on which the lessee is allowed to begin using the leased asset. A) lease inception; lease commencement B) lease consideration; lease commencement C) lease inception; lease finalization D) both A and B are correct

A) lease inception; lease commencement

Unrealized gains and losses on investments in equity securities are reported for an investment in another company when the percentage of ownership in another company is A) less than 20% B) 20% to 50% C) 51% to 74% D) 75% or greater

A) less than 20%

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

A) the lease receivable and the present value of any unguaranteed residual asset

on the balance sheet, the lease liability is measured as ________. A) the present value of the lease payments + the present value of the guaranteed residual value if the lessee guarantees it (if any) B) the present value of the lease payments - the present value of the guaranteed residual value (if any) C) the future value of the lease payments + the future value of the guaranteed residual value (if any) D) the present value of the lease payments + the future value of the guaranteed residual value (if any)

A) the present value of the lease payments + the present value of the guaranteed residual value if the lessee guarantees it (if any)

How are transfers between portfolios (i.e. from trading to available-for-sale) accounted for? A) transfers between portfolios are accounted for at fair value on the date of the transfer B) transfers between portfolios are not allowed under U.S. GAAP C) transfers between portfolios are accounted for based on the initial cost of the investment D) transfers between portfolios are accounted for based on the most recently reported fair value of the investments

A) transfers between portfolios are accounted for at fair value on the date of the transfer

Laurent invested $19,000 in shares of DEF during Year 1, classifying the investment as available-for-sale. The fair value of this investment was $17,500 and $22,000 at the end of Year 1 and Year 2, respectively. What is the unrealized gain or loss for this investment at the end of Year 1 and how is it reported? A) unrealized loss of 1,500, reported as part of other comprehensive income B) unrealized loss of 1,500, reported as part of net income C) unrealized gain of 3,000, reported as part of other comprehensive income D) unrealized gain of 3,000, reported as part of net income

A) unrealized loss of 1,500, reported as part of other comprehensive income

Prior to 2019, lessees did not include the right-of-use asset and the lease liability for operating leases on their balance sheets. both FASB and IASB wrote new standards to require that lessees nearly always report an asset and liability on their balance sheets when they engage in a lease transaction. this accounting results in which of the following? A) a more reliable estimation of the lease's value B) a more faithful representation of the rights and obligations arising from leases C) a better determination on whether the lessor held the risk and rewards of the asset's ownership D) all of the above

B) a more faithful representation of the rights and obligations arising from leases

Greenville Industries uses the accrual basis to account for all sales transactions. Sales for 2018 total $560,000. Included in this amount is $25,000 in receivables from sales on installment. Installment sales are considered revenue for book purposes, but not for tax purposes. Operating expenses total $120,000 and are treated the same for book and tax purposes. What is Greenville's tax basis in the installment sale receivable? A) $25,000 B) $0 C) $12,500 D) $120,000

B) $0

TLR Productions reported income before taxes of 205,000 for the years 2016, 2017, and 2018. In 2019 they experienced a loss of 500,000. TLR had a tax rate of 35% in 2016 and 2017, and a rate of 45% in 2018 and 2019. assuming the company uses the carryback provisions for the net operating loss, what amount should be reported as income tax refund receivable in 2019? A) 71,750 B) 164,000 C) 204,500 D) 225,000

B) 164,000

lyon groups income before taxes is 420,000 and its tax rate is 40%. lyon included 30,000 in fines and penalties in the 420,000. there are no other book-tax differences. what is income tax payable for lyon group. A) 168,000 B) 180,000 C) 156,000 D) 12,000

B) 180,000

Danios Inc.'s income before taxes is 550,000 and its tax rate is 30%. Danio included 30,000 of interest from municipal bonds in the 550,000. there are no other book-tax differences. what is the effective tax rate for Danio Inc.? A) 27% B) 28% C) 30% D) 32%

B) 28%

Greene Co. had pretax book income for the year ended December 31st, 2018 in the amount of 285,000 and has a tax rate of 40%. depreciation for tax purposes exceeded book depreciation by 13,500. what should Greene Co. record as its federal income tax liability for 2018? A) 114,000 B) 78,750 C) 108,600 D) 119,400

C) 108,600

A company may carry back a tax loss for ________ years and carry forward a tax loss for ________ years. A) 20; 2 B) 1; 15 C) 2; 20 D) 15; 1

C) 2; 20

kravitz corporation had income before taxes of 900,000 and a tax rate of 45%. included in the income are 80,000 in municipal bonds interest and 10,000 in fines and penalties. there are no other book-tax differences. what is kravitz taxable income? A) 910,000 B) 820,000 C) 830,000 D) 900,000

C) 830,000

TNT Corporation's income tax payable is $240,000 and its tax rate is 30%. Assuming no book-tax differences, what is TNT's net income? (Round your answer to the nearest whole dollar). A) $72,000 B) $240,000 C) $800,000 D) $560,000

D) $560,000

purrfect pet industries income before taxes is 810,000 and its tax rate is 50%. purrfect pet included 50,000 of fully deductible inter-corporate dividends received in the 810,000. there are no other book-tax differences. what is the income tax payable for purrfect pet? A) 405,000 B) 430,000 C) 25,000 D) 380,000

D) 380,000

Price Enterprises invested in the bonds of Greater Glouster on January 1, 2015. these 10 year, 100,000 bonds pay interest of 3% every June 30 and December 31st. The effective rate of interest for similar bonds on January 1 was 4%. what is the purchase price of these bonds? A) 100,000 B) 91,889 C) 108,584 D) 91,824

D) 91,824

JayBird Jewelers purchased 3,000,000 of the outstanding 10,000,000 shares of Angel & Associates. JayBirds has significant influence over Angle, so JayBird will account for this investment using the equity method. Angle declares dividends of 275,000 during the year. How will JayBird record this transaction? A) JayBird will increase the investment account by 82,500 B) JayBird will increase dividends Revenue by 82,500 C) JayBird will increase dividends revenue by 275,000 D) JayBird will decrease the investment account by 82,500

D) JayBird will decrease the investment account by 82,500

if a company chooses to carryback a net operating loss (NOL), but is not able to fully offset the loss, they will ________. A) forgo the carryback option and carryforward the entire NOL B) forfeit the unused amount C) carry forward the remaining balance D) both A and C are viable options

D) both A and C are viable options

all of the following are examples of facts that may create temporary book-tax differences except ________. A) contingent liabilities B) depreciation C) product warranty costs D) payment of premiums for life insurance

D) payment of premiums for life insurance

for an operating lease, the lessee will record an ________ and an associated lease liability on the balance sheet. A) intangible asset B) capital adjustment C) contra-liability account D) right-of-use asset

D) right-of-use asset

for an _______ lease, a lessor recognizes revenue on the sale and records the asset, ________ lease. it also removes the leased asset from its accounts and records the _______. A) sales type; finance; revenue B) operating; net investment in lease-sales type; cost of goods sold C) finance; gross investment in lease-sales type; cost of goods sold D) sales type; net investment in lease-sales type; cost of goods sold

D) sales type; net investment in lease-sales type; cost of goods sold

Rhoads purchased common shares of Company A and B for $10,000 and $12,000, respectively on 12/15. Rhoads intends to sell these securities within 30 days. At 12/31, Investments in Company A & B had a fair value of $9,000 and $15,000, respectively. Assuming this is the first trading investment for Rhoads, what is the unrealized gain or loss for these securities and how is it reported? A) unrealized loss of 1,000, unrealized gain of 3,000, both reported as part of net income B) unrealized gain of 2,000, reported as part of other comprehensive income C) unrealized loss of 1,000, unrealized gain of 3,000, both reported as part of other comprehensive income D) unrealized gain of 2,000, reported as part of net income

D) unrealized gain of 2,000, reported as part of net income

net investment in the lease for a direct finance lease (NIL-DF) is comprised of

the lease receivable, the present value of any unguaranteed residual asset, and a reduction for any deferred profit.

revenue for a direct finance lease is calculated as

the lower of (1) the fair value of the leased asset or (2) the sum of the lease receivable and any lease payments paid before the lease commencement date.