FAR CPA module 4-6

Snelling Co. did not record an accrual for a contingent loss, but disclosed the nature of the contingency and the range of the possible loss. How likely is the loss? A) Remote. B) Reasonably possible. C) Probable. D) Certain.

B) Reasonably possible.

A nonaccelerated filer, as established by the U.S. Securities and Exchange Commission, includes companies with less than exactly what amount in public equity float? A) $75 million B) $100 million C) $125 million D) $150 million

A) $75 million

Bensol Co. and Sable Co. exchanged similar trucks with fair values in excess of carrying amounts. In addition, Bensol paid Sable to compensate for the difference in truck values. The exchange has commercial substance. As a consequence of the exchange, Sable recognizes A) A gain equal to the difference between the fair value and carrying amount of the truck given up. B) A gain determined by the proportion of cash received to the total consideration. C) A loss determined by the proportion of cash received to the total consideration. D) Neither a gain nor a loss.

A) A gain equal to the difference between the fair value and carrying amount of the truck given up.

In an exchange of plant assets, Transit Co. received equipment with a fair value equal to the carrying amount of equipment given up. Transit also contributed cash. The exchange lacks commercial substance.As a result of the exchange, Transit recognized A) A loss equal to the cash given up. B) A loss determined by the proportion of cash paid to the total transaction value. C) A gain determined by the proportion of cash paid to the total transaction value. D) Neither gain nor loss.

A) A loss equal to the cash given up.

Which of the following statements describes the proper accounting for losses when nonmonetary assets are exchanged for other nonmonetary assets? A) A loss is recognized immediately, because assets received should not be valued at more than their cash-equivalent price. B) A loss is deferred so that the asset received in the exchange is properly valued. C) A loss, if any, which is unrelated to the determination of the amount of the asset received should be recorded. D) A loss can occur only when assets are sold or disposed of in a monetary transaction.

A) A loss is recognized immediately, because assets received should not be valued at more than their cash-equivalent price.

Choose the correct statement about international accounting standards as they relate to contingent liabilities and similar items. A) A provision that has a reasonably possible chance of requiring the outflow of benefits is treated as a contingent liability. B) Provisions are recognized only when there is greater than a 90% probability of an outflow of benefits occurring. C) A recognized provision is a contingent liability. D) A provision for which it is probable that an outflow of benefits will be required is recognized, even if it is not of estimable amount.

A) A provision that has a reasonably possible chance of requiring the outflow of benefits is treated as a contingent liability.

Which of the following is not a contingent liability under international accounting standards? A) A provision with a 60% chance of requiring an outflow of benefits, amount is estimable. B) A provision with a 40% chance of requiring an outflow of benefits, amount is estimable. C) A provision with a 90% chance of requiring an outflow of benefits, amount not estimable. D) A possible obligation.

A) A provision with a 60% chance of requiring an outflow of benefits, amount is estimable.

The if-converted method of computing earnings per share data assumes conversion of convertible securities as of the A) Beginning of the earliest period reported (or at time of issuance, if later). B) Beginning of the earliest period reported (regardless of time of issuance). C) Middle of the earliest period reported (regardless of time of issuance). D) Ending of the earliest period reported (regardless of time of issuance).

A) Beginning of the earliest period reported (or at time of issuance, if later).

An inventory loss from a market price decline occurred in the first quarter, and the decline was not expected to reverse during the fiscal year. However, in the third quarter, the inventory's market price recovery exceeded the market decline that occurred in the first quarter. For interim financial reporting under IFRS, the dollar amount of net inventory should: A) Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the decrease in the first quarter. B) Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the market price recovery. C) Decrease in the first quarter by the amount of the market price decline and not be affected in the third quarter. D) Not be affected in either the first quarter or the third quarter.

A) Decrease in the first quarter by the amount of the market price decline and increase in the third quarter by the amount of the decrease in the first quarter.

Which of the following is a research and development cost? A) Development or improvement of techniques and processes B) Offshore oil exploration that is the primary activity of a company C) Research and development performed under contract for others D) Market research related to a major product for the company

A) Development or improvement of techniques and processes

What information should a public company present about revenues from foreign operations? A) Disclose separately the amount of sales to unaffiliated customers and the amount of intracompany sales between geographical areas. B) Disclose as a combined amount sales to unaffiliated customers and intracompany sales between geographical areas. C) Disclose separately the amount of sales to unaffiliated customers but not the amount of intracompany sales between geographical areas. D) No disclosure of revenues from foreign operations needs to be reported.

A) Disclose separately the amount of sales to unaffiliated customers and the amount of intracompany sales between geographical areas.

Eagle Co. has cosigned the mortgage note on the home of its president, guaranteeing the indebtedness in the event that the president should default. Eagle considers the likelihood of default to be remote. How should the guarantee be treated in Eagle's financial statements? A) Disclosed only. B) Accrued only. C) Accrued and disclosed. D) Neither accrued nor disclosed.

A) Disclosed only.

When an investor does not exert influence over the investee and accounts for an equity investment at fair value, cash dividends received by the investor from the investee should normally be recorded as A) Dividend income. B) An addition to the investor's share of the investee's profit. C) A deduction from the investor's share of the investee's profit. D) A deduction from the investment account.

A) Dividend income.

The SEC is comprised of five commissioners, appointed by the President of the United States, and five divisions. Which of the following divisions is responsible for overseeing compliance with the securities acts? A) Division of Corporate Finance. B) Division of Enforcement. C) Division of Trading and Markets. D) Division of Investment Management.

A) Division of Corporate Finance.

When the effective interest method of amortization is used for bonds issued at a premium, the amount of interest payable for an interest period is calculated by multiplying the A) Face value of the bonds at the beginning of the period by the contractual interest rate. B) This is the face value of the bonds at the beginning of the period by the effective interest rate. C) Carrying value of the bonds at the beginning of the period by the contractual interest rate D) Carrying value of the bonds at the beginning of the period by the effective interest rate

A) Face value of the bonds at the beginning of the period by the contractual interest rate.

Pal Corp.'s 2004 dividend income included only part of the dividend received from its Ima Corp. investment. The balance of the dividend reduced Pal's carrying amount for its Ima investment. This reflects that Pal accounts for its Ima investment by the: A) Fair Value method, and only a portion of Ima's 2004 dividends represent earnings after Pal's acquisition. B) Fair Value method, and its carrying amount, exceeded the proportionate share of Ima's market value. C) Equity method, and Ima incurred a loss in 2004. D) Equity method, and its carrying amount exceeded the proportionate share of Ima's market value.

A) Fair Value method, and only a portion of Ima's 2004 dividends represent earnings after Pal's acquisition.

A debt security is transferred from the held-for-trading portfolio to the available-for-sale portfolio. At the transfer date, the security's cost exceeds its fair value. What amount is used at the transfer date to record the security in the available-for-sale portfolio? A) Fair value, regardless of whether the decline in fair value below cost is considered permanent or temporary B) Fair value, only if the decline in fair value below cost is considered permanent C) Cost, if the decline in fair value below cost is considered temporary D) Cost, regardless of whether the decline in fair value below cost is considered permanent or temporary

A) Fair value, regardless of whether the decline in fair value below cost is considered permanent or temporary

Which of the following reports would a company file to meet the U.S. Securities and Exchange Commission's requirements for unaudited, interim financial statements reviewed by an independent accountant? A) Form 10-Q B) Form 10-K C) 14A Proxy Statement D) Form S-1

A) Form 10-Q

ABC Co. is a public company that is required to file financial reports with the United States Securities and Exchange Commission (SEC). ABC acquired a significant related business, Bauer Co., through the registration and issuance of additional shares of common stock to the former stockholders of Bauer. Which of the following forms should ABC file with the SEC as a result of the acquisition of Bauer? A) Form 8-K. B) Form 10-K. C) Form 10-Q. D) Form S-1.

A) Form 8-K.

Which, if either, of the following statements concerning the transfer of investments between categories under IFRS No. 9 is/are correct? I. Only investments in debt securities may be transferred between categories. II. When investments are transferred between categories, financial statements of prior periods presented for comparative purposes must not be restated. A) I only. B) II only. C) Both I and II. D) Neither I nor II.

A) I only.

Which of the following is true with respect to impairment of available-for-sale securities? A) If the decline in fair value is considered to be associated with a credit loss, the unrealized losses in OCI are reclassified to earnings. B) If the decline in fair value is considered to be associated with a credit loss, the unrealized losses are recorded in OCI. C) If the decline in fair value is not considered to be associated with a credit loss, the unrealized gains in OCI are reclassified to earnings. D) If the decline in fair value is not considered to be associated with a credit loss, the unrealized gains are recorded in OCI.

A) If the decline in fair value is considered to be associated with a credit loss, the unrealized losses in OCI are reclassified to earnings.

At December 31, Year 4, Date Co. awaits judgment on a lawsuit for a competitor's infringement of Date's patent. Legal counsel believes it is probable that Date will win the suit and indicated the most likely award together with a range of possible awards. How should the lawsuit be reported in Date's Year 4 financial statements? A) In note disclosure only. B) By accrual for the most likely award. C) By accrual for the lowest amount of the range of possible awards. D) Neither in note disclosure nor by accrual.

A) In note disclosure only.

After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis. Which of the following statements about subsequent reversal of a previously recognized impairment loss is correct? A) It is prohibited. B) It is required when the reversal is considered permanent. C) It must be disclosed in the notes to the financial statements. D) It is encouraged, but not required.

A) It is prohibited.

A U.S. publicly traded company's second fiscal quarter-ends on March 31. If the company is an accelerated filer, what is the latest date that the 10-Q should be filed with the U.S. SEC? A) May 10. B) May 15. C) May 30. D) June 29.

A) May 10.

Peel Co. received a cash dividend from a common stock investment. Should Peel report an increase in the investment account if it accounts for the investment at fair value or uses the equity method of accounting? Fair value method Equity method A) No No B) Yes Yes C) Yes No D) No Yes

A) No No

Which of the following contingencies should generally be accrued on the balance sheet as a liability when the occurrence of the contingent event is reasonably possible and its amount can be reasonably estimated? Expropriation of assets Product warranty obligation A) No No B) No Yes C) Yes Yes D) Yes No

A) No No

A company has experienced operating losses from its appliances division for the past five years. The division is a cash-generating unit. Under IFRS, the company's next step in performing its impairment test is to: A) Perform a recoverability test on the carrying amount of the division's assets. B) Reduce the carrying amount of the division's assets to the amount of expected divisional cash flows. C) Adjust the carrying amount of the division's assets to fair value. D) Adjust the carrying amount of the division's assets to replacement value.

A) Perform a recoverability test on the carrying amount of the division's assets.

When a bond is purchased, the present value of the bond's expected net future cash inflows discounted at the market rate of interest provides what information about the bond? A) Price. B) Par. C) Yield. D) Interest.

A) Price.

Which of the following is not a required component of the 10-K filing? A) Product market share. B) Description of the business. C) Market price of common stock. D) Executive compensation.

A) Product market share.

If everything else is held constant, earnings per share is increased by: A) Purchase of treasury stock. B) Issuance of new shares of common stock. C) Payment of a cash dividend to common stockholders. D) Payment of a cash dividend to both preferred and common stockholders.

A) Purchase of treasury stock.

For an available-for-sale (AFS) security transferred into the trading category, the portion of the unrealized holding gain or loss at the date of the transfer that has not been previously recognized in earnings shall be A) Recognized in earnings immediately. B) Amortized over the period to date of sale. C) Transferred to other comprehensive earnings. D) Deferred and recognized when the security is sold.

A) Recognized in earnings immediately.

Gains or losses from the early extinguishment of debt, if material, should be A) Recognized in income from continuing operations in the period of extinguishment. B) Recognized as other comprehensive income in the period of extinguishment. C) Amortized over the life of the new issue. D) Amortized over the remaining original life of the extinguished issue.

A) Recognized in income from continuing operations in the period of extinguishment.

When computing diluted earnings per share, potentially dilutive securities are A) Recognized only if they are dilutive. B) Recognized only if they are antidilutive. C) Recognized whether they are dilutive or antidilutive. D) Ignored.

A) Recognized only if they are dilutive.

Which regulation governs the form and content of financial statement disclosures? A) Regulation S-X. B) Sarbanes Oxley. C) Regulation S-K. D) Regulation S-Q.

A) Regulation S-X

Choose the correct statement regarding the accounting treatment of troubled debt restructures (TDRs) under international accounting standards (IAS). A) Settlements are treated the same way as under U.S. standards. B) Modification of terms TDRs are treated the same way as under U.S. standards. C) A significant modification of terms for IAS is treated as a modification of terms type II under U.S. standards. D) A non-significant modification of terms for IAS is treated as a modification of terms type I under U.S. standards.

A) Settlements are treated the same way as under U.S. standards.

A bond issued on June 1, 20X5, has interest payment dates of April 1 and October 1. The bond interest expense for the year ended December 31, 20X5, is for a period of A) Seven months. B) Six months. C) Four months. D) Three months.

A) Seven months.

Opto Co. is a publicly traded, consolidated enterprise reporting segment information. Which of the following items is a required enterprise-wide disclosure regarding external customers? A) The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues B) The identity of any external customer providing 10% or more of a particular operating segment's revenue C) The identity of any external customer considered to be "major" by management D) Information on major customers is not required in segment reporting.

A) The fact that transactions with a particular external customer constitute more than 10% of the total enterprise revenues

In which one of the following circumstances would an investor most likely have control of an investee? A) The investor owns more than 50% of the voting common stock of an investee. B) The investor owns 100% of the nonvoting preferred stock of an investee. C) The investor owns 90% of the voting common stock of a foreign investee on which the foreign government imposes significant financial and operating restrictions. D) The investor owns 100% of the voting common stock of a domestic investee that is in bankruptcy.

A) The investor owns more than 50% of the voting common stock of an investee.

If both an asset group and goodwill in one of a company's reporting units have to be tested for impairment, which of the following statements is correct regarding impairment testing and impairment losses? A) The other asset group should be tested for an impairment loss before goodwill is tested. B) Impairment testing may be conducted concurrently for the other asset group and goodwill. C) If the other asset group is impaired, the loss should not be recognized prior to goodwill being tested for impairment. D) If goodwill is impaired, the loss should be recognized prior to testing the other assets for impairment.

A) The other asset group should be tested for an impairment loss before goodwill is tested.

For a troubled debt restructuring involving only a modification of terms, which of the following items specified by the new terms would be compared to the carrying amount of the debt to determine if the debtor should report a gain on restructuring? A) The total future cash payments B) The present value of the debt at the original interest rate C) The present value of the debt at the modified interest rate D) The amount of future cash payments designated as principal repayments

A) The total future cash payments

Which of the following describes a factor when an entity can invoke the practicability exception to using fair value when reporting an equity security? A) There are no bid-and-ask quotations available on a securities exchange or in a publicly reported over-the-counter market. B) There are sales prices available on a securities exchange or publicly reported in the over-the-counter market. C) There are prices or quotations in a foreign market that has the breadth and scope of the U.S. markets. D) There are prices or quotations for investments based on the fair value per share as published based on current transactions.

A) There are no bid-and-ask quotations available on a securities exchange or in a publicly reported over-the-counter market.

In determining whether to accrue employees' compensation for future absences, one of the conditions that must be met is that the employer has an obligation to make payment even if an employee terminates. This an example of a(n) A) Vested right. B) Accumulated right. C) Contingent right. D) Estimable right.

A) Vested right.

Choose the correct statement concerning transactions involving the issuance of shares in payment of obligations for goods and services. A) When the value of shares to be issued is fixed, the number of shares to be issued is variable. B) When the value of shares to be issued is fixed, the number of shares to be issued is fixed. C) When the number of shares to be issued is fixed, the expense to be recorded is variable. D) When the number of shares to be issued is fixed, the issuing firm records a liability.

A) When the value of shares to be issued is fixed, the number of shares to be issued is variable.

In financial reporting of segment data, which of the following must be considered in determining if an industry segment is a reportable segment? Sales to unaffiliated customers Intersegment sales A) Yes Yes B) Yes No C) No Yes D) No No

A) Yes Yes

May Co. and Sty Co. exchanged nonmonetary assets. The exchange did not culminate an earning process for either May or Sty (the exchange lacked commercial substance). May paid cash to Sty in connection with the exchange. The book value of the asset exchanged exceeded its fair value for both firms. Therefore, a loss on the exchange should be recognized by May Sty A) Yes Yes B) Yes No C) No Yes D) No No

A) Yes Yes

When an investor acquires sufficient voting common stock of an investee so that it has significant influence, which, if any, of the following kinds of investee data must the investor "capture" at the time the investment is made? - Book values of assets & liabilities - Fair values of assets & liabilities A) Yes Yes B) Yes No C) No Yes D) No No

A) Yes Yes

Which of the following are possible ways that gains or losses on changes in the fair value of investments in equity securities may be reported under IFRS requirements? In profit/loss (Income Statement) In other comprehensive income A) Yes Yes B) Yes No C) No Yes D) No No

A) Yes Yes

Which of the following items would be recognized in financial statements prepared using an income tax basis of accounting relating to permanent differences? Nontaxable Income Nondeductible Expenses A) Yes Yes B) Yes No C) No Yes D) No No

A) Yes Yes

Which, if any, of the following transfers between categories is possible under IFRS No. 9 for investments in debt securities? Amortized cost to fair value Fair value to amortized cost A) Yes Yes B) Yes No C) No Yes D) No No

A) Yes Yes

Which, if any, of the following transfers between classifications of debt investments are possible? - Held-to-maturity to held-for-trading - Held-for-trading to held-to-maturity A) Yes Yes B) Yes No C) No Yes D) No No

A) Yes Yes

In the absence of other relevant factors, what minimum level of voting ownership is considered to give an investor significant influence over an investee? A) 10% B) 20% C) 50% D) 100%

B) 20%

A company that is a large accelerated filer must file its Form 10-Q with the United States Securities and Exchange Commission within how many days after the end of the period? A) 30 days. B) 40 days. C) 45 days. D) 60 days.

B) 40 days.

Slate Co. and Talse Co. exchanged similar plots of land with fair values in excess of carrying amounts. In addition, Slate received cash from Talse to compensate for the difference in land values. The exchange lacks commercial substance. As a result of the exchange, Slate should recognize A) A gain equal to the difference between the fair value and the carrying amount of the land given up. B) A gain in an amount determined by the ratio of cash received to total consideration. C) A loss in an amount determined by the ratio of cash received to total consideration. D) Neither a gain nor a loss.

B) A gain in an amount determined by the ratio of cash received to total consideration.

On December 31, year 1, Taylor, Inc. signed a binding agreement with a bank for the refinancing of an existing note payable scheduled to mature in February, year 2. The terms of the refinancing included extending the maturity date of the note by three years. On January 15, year 2, the note was refinanced. How should Taylor report the note payable in its December 31, year 1 balance sheet? A) A current liability. B) A long-term liability. C) A long-term note receivable D) A current note receivable

B) A long-term liability.

Abbot Co. is being sued for illness caused to local residents as a result of negligence on the company's part in permitting the local residents to be exposed to highly toxic chemicals from its plant. Abbot's lawyer states that it is probable that Abbot will lose the suit and be found liable for a judgment costing Abbot anywhere from $500,000 to $2,500,000. However, the lawyer states that the most probable cost is $1,000,000. As a result of the above facts, Abbot should accrue A) A loss contingency of $500,000 and disclose an additional contingency of up to $2,000,000. B) A loss contingency of $1,000,000 and disclose an additional contingency of up to $1,500,000. C) A loss contingency of $1,000,000 but not disclose any additional contingency. D) No loss contingency but disclose a contingency of $500,000 to $2,500,000.

B) A loss contingency of $1,000,000 and disclose an additional contingency of up to $1,500,000.

If the payment of employees' compensation for future absences is probable, the amount can be reasonably estimated, and the obligation relates to rights that accumulate, the compensation should be A) Accrued if attributable to employees' services not already rendered. B) Accrued if attributable to employees' services already rendered. C) Accrued if attributable to employees' services, whether already rendered or not. D) Recognized when paid.

B) Accrued if attributable to employees' services already rendered.

In determining earnings per share, interest expense, net of applicable income taxes, on convertible debt which is dilutive should be A) Added back to net income for basic earnings per share, and ignored for diluted earnings per share. B) Added back to net income for diluted earnings per share. C) Deducted from net income for basic earnings per share and ignored for diluted earnings per share. D) Deducted from net income for both basic earnings per share and diluted earnings per share.

B) Added back to net income for diluted earnings per share.

Under IFRS, an entity that acquires an intangible asset may use the revaluation model for subsequent measurement only if: A) The useful life of the intangible asset can be reliably determined. B) An active market exists for the intangible asset. C) The cost of the intangible asset can be measured reliably. D) The intangible asset is a monetary asset.

B) An active market exists for the intangible asset.

Invern, Inc. has a self-insurance plan. Each year, retained earnings is appropriated for contingencies in an amount equal to insurance premiums saved less recognized losses from lawsuits and other claims. As a result of a year 2 accident, Invern is a defendant in a lawsuit in which it will probably have to pay damages of $190,000. What are the effects of this lawsuit's probable outcome on Invern's year 2 financial statements? A) An increase in expenses and no effect on liabilities. B) An increase in both expenses and liabilities. C) No effect on expenses and an increase in liabilities. D) No effect on either expenses or liabilities.

B) An increase in both expenses and liabilities.

A company issued a bond with a stated rate of interest that is less than the effective interest rate on the date of issuance. The bond was issued on one of the interest payment dates. What should the company report on the first interest payment date? A) An interest expense that is less than the cash payment made to bondholders. B) An interest expense that is greater than the cash payment made to bondholders. C) A debit to the unamortized bond discount D) A debit to the unamortized bond premium

B) An interest expense that is greater than the cash payment made to bondholders.

A private company decided to adopt one of the standards issued by the Private Company Council. What are the requirements upon adoption of the PCC standard? A) Apply the new standard on a retrospective basis. B) Apply the new standard on a prospective basis. C) Assess whether application of the new standard is preferable and apply on a retrospective basis. D) Assess whether application of the new standard is preferable and apply on a prospective basis.

B) Apply the new standard on a prospective basis.

On December 31, 20x2, Paxton Co. had a note payable due on August 1, 20x3. On January 20, 20x3, Paxton signed a financing agreement to borrow the balance of the note payable from a lending institution to refinance the note. The agreement does not expire within one year, and no violation of any provision in the financing agreement exists. On February 1, 20x3, Paxton was informed by its financial advisor that the lender is not expected to be financially capable of honoring the agreement. Paxton's financial statements were issued on March 31, 20x3. How should Paxton classify the note on its balance sheet at December 31, 20x2? A) As a current liability because the financing agreement was signed after the balance sheet date. B) As a current liability because the lender is not expected to be financially capable of honoring the agreement. C) As a long-term liability because the agreement does not expire within one year D) As a long-term liability because no violation of any provision in the financing agreement exists

B) As a current liability because the lender is not expected to be financially capable of honoring the agreement.

A 15-year bond was issued in year 5 at a discount. During year 15, a 10-year bond was issued at face amount with the proceeds used to retire the 15-year bond at its face amount. The net effect of the year 15 bond transactions was to increase long-term liabilities by the excess of the 10-year bond's face amount over that of the 15-year bond's: A) Face amount. B) Carrying amount. C) Face amount less the deferred loss on bond retirement. D) Carrying amount less the deferred loss on bond retirement.

B) Carrying amount.

Which of the following is required by Regulation S-K to be included in the Management's Discussion and Analysis (MD&A) that is part of the 10-K? A) The Balance Sheet. B) Discussion of risks and uncertainties. C) Accounting fees and services. D) Executive compensation.

B) Discussion of risks and uncertainties.

Beach Co. determined that the decline in the fair value (FV) of an investment was below the amortized cost and is associated with the credit decline of the issuer (a credit loss). The investment was classified as available-for-sale on Beach's books. Beach Co. does not elect the fair value option to account for these securities. The controller would properly record the decrease in FV by including it in which of the following? A) Other comprehensive income section of the income statement only B) Earnings section of the income statement C) Extraordinary items section of the income statement D) Accumulated other comprehensive income section of the balance sheet only

B) Earnings section of the income statement

For interim financial reporting, a company's income tax provision for the second quarter of 20X4 should be determined using the: A) Effective tax rate expected to be applicable for the full year of 2004 as estimated at the end of the first quarter of 20X4. B) Effective tax rate expected to be applicable for the full year of 2004 as estimated at the end of the second quarter of 20X4. C) Effective tax rate expected to be applicable for the second quarter of 20X4. D) Statutory tax rate for 20X4.

B) Effective tax rate expected to be applicable for the full year of 2004 as estimated at the end of the second quarter of 20X4.

The SEC enforces the corporate registration requirements of the Securities Act of 1933 as one of its principal objectives. These requirements are intended to provide information that enables the SEC to: A) Evaluate the financial merits of the corporation offering the securities to the public. B) Ensure that investors are provided with adequate information on which to base investment decisions. C) Guarantee that the facts contained in the registration statement are accurate. D) Assure investors of the accuracy of the financial statements.

B) Ensure that investors are provided with adequate information on which to base investment decisions.

On October 1, 200X, Catco acquired 12% of the common stock of Dexco. The firms had no other relationships or transactions. On January 1, 200Y, Catco acquired an additional 18% of Dexco's common stock. There were no other transactions or relationships between the firms during 200Y. What method(s) of accounting would Catco have used for the investment during each of the following periods? - October 1-December 31, 200X - January 1-December 31, 200Y A) Fair value Fair value B) Fair value Equity method C) Equity method Fair value D) Equity method Equity method

B) Fair value Equity method

A short-term marketable debt security was purchased on September 1, Year 1, between interest dates. The next interest payment date was February 1, Year 2. On the balance sheet at December 31, Year 1, the debt security should be carried at A) Fair value plus the accrued interest paid. B) Fair value. C) Cost plus the accrued interest paid. D) Cost.

B) Fair value.

Even though the SEC delegates the creation of accounting standards to the private sector, the SEC frequently comments on accounting and auditing issues. The main pronouncements published by the SEC are: A) Federal Reporting Updates (FRU). B) Financial Reporting Releases (FRR). C) Staff Auditing Bulletins (SAB). D) Accounting Principles Opinions (APO).

B) Financial Reporting Releases (FRR).

Which of the following is the annual report that is filed with the United States Securities and Exchange Commission (SEC)? A) Form 8-K. B) Form 10-K. C) Form S-1. D) Form 10-Q.

B) Form 10-K.

The Private Company Council has issued modified accounting for private companies for what aspect of Goodwill? A) Goodwill impairment testing. B) Goodwill amortization. C) Goodwill measurement. D) Goodwill reporting.

B) Goodwill amortization.

For a debt securities portfolio classified as available-for-sale, which of the following amounts should be included in the period's net income? I. Unrealized temporary losses during the period II. Realized gains during the period III. Changes in the credit loss allowance during the period A) III only B) II and III C) I and II D) I, II, and III

B) II and III

Which, if any, of the following characteristics concerning the categories of investments under IFRS No. 9 is/are correct? I. There is a single category for debt investments and a single category for equity investments. II. The business model test used in evaluating debt instruments for classification purposes is concerned with the investor's intent. A) I only B) II only C) Both I and II D) Neither I nor II

B) II only

Which of the following statements is true concerning the correct accounting for equity investments? I. An investor must account for (measure) all equity investments using fair value. II. An investor may elect to account for (measure) some equity investments at fair value. A) I only. B) II only. C) Both I and II. D) Neither I nor II.

B) II only.

A debtor and a creditor have negotiated new terms on a note. How can you determine whether the restructuring is a troubled debt restructure? A) If the interest rate as stated in the restructuring agreement has been reduced relative to the original loan agreement B) If the present value of the restructured flows using the original interest rate is less than the book value of the debt at the date of the restructure. C) If the interest rate that equates (1) the book value of the debt at the date of the restructure and (2) the present value of restructured cash flows, exceeds the original interest rate D) If the present value of the restructured flows using the original interest rate is less than the market value of the original debt at the date of the restructure

B) If the present value of the restructured flows using the original interest rate is less than the book value of the debt at the date of the restructure.

How is an impairment loss recognized on the financial statements for a cost method equity investment? A) In other comprehensive income B) In current earnings C) Deferred until recoverable D) Impairment losses are not recognized on cost method investments.

B) In current earnings

After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis. Under IFRS, which of the following statements about subsequent reversal of a previously recognized impairment loss is correct? A) It is prohibited. B) It is allowed when events and circumstances change. C) It is allowed only if the intangible asset is recorded at fair value. D) The recovery amount can exceed the carrying value at the time of the initial impairment.

B) It is allowed when events and circumstances change.

Which of the following accurately describes the appropriate accounting by a public company for goodwill acquired through a business combination? A) It should be recorded at cost and tested for impairment every three years. B) It should be recorded at cost and tested for impairment on an annual basis and more often if certain events occur. C) It should be recorded at cost and amortized over a 10-year period. D) It should be recorded at cost and amortized over a 40-year period.

B) It should be recorded at cost and tested for impairment on an annual basis and more often if certain events occur.

A company issued a short-term note payable to a bank with a stated 12 percent rate of interest . The bank charged a .5% loan origination fee and remitted the balance to the company. The effective interest rate paid by the company in this transaction would be A) Equal to 12.5%. B) More than 12.5% C) Less than 12.5%. D) Independent of 12.5%

B) More than 12.5%

Which of the following is a recognized liability for both international accounting standards and U.S. standards? A) Regular warranty liability, 60% probability of occurring. B) Obligation to provide rebates to customers, 90% probability of occurring. C) Possible loss due to lawsuit, 60% probability of occurring. D) Possible loss due to lawsuit, 40% probability of occurring.

B) Obligation to provide rebates to customers, 90% probability of occurring.

Weald Co. took advantage of market conditions to refund debt. This was the fifth refunding operation carried out by Weald within the last four years. The excess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a(an) A) Deferred credit to be amortized over life of new debt. B) Part of continuing operations. C) Part of other comprehensive income for the year. D) Loss.

B) Part of continuing operations.

Which of the following types of entities are required to report on business segments? A) Nonpublic business enterprises B) Publicly traded enterprises C) Not-for-profit enterprises D) Joint ventures

B) Publicly traded enterprises

Yellow Co. received a large worker's compensation claim of $90,000 in the third quarter for an injury occurring in the third quarter. How should Yellow account for the transaction in its interim financial report? A) Recognize $30,000 for each of the first three quarters. B) Recognize $90,000 in the third quarter. C) Recognize $22,500 ratably over the four quarters of the year. D) Disclose the $90,000 in the third quarter and recognize it at year end.

B) Recognize $90,000 in the third quarter.

An investor purchased a bond classified as a held-to-maturity investment between interest dates at a discount. At the purchase date, the carrying amount of the bond is more than the: Cash paid to seller Face amount of bond A. No Yes B. No No C. Yes No D. Yes Yes A) Row A. B) Row B. C) Row C. D) Row D.

B) Row B.

What type of bonds in a particular bond issuance will not all mature on the same date? A) Debenture bonds. B) Serial bonds C) Term bonds D) Sinking fund bonds

B) Serial bonds

A public entity sells steel for use in construction. One of its customers accounts for 43% of sales, and another customer accounts for 40% of sales. What should the entity disclose in its annual financial statements about these two customers? A) The payment terms of accounts receivable due from each of the two customers. B) The amount of the entity's revenue from each of the two customers. C) The names of the two customers. D) The financial condition of the two customers.

B) The amount of the entity's revenue from each of the two customers.

Which one of the following is least likely to be a factor in determining how an investment in debt or equity securities is accounted for and reported in financial statements? A) The nature of the investment B) The method of payment used to acquire the investment C) The extent or proportion of the investment securities acquired D) The purpose for which the investment was made

B) The method of payment used to acquire the investment

In year 1, a company reported in other comprehensive income an unrealized holding loss on a debt investment classified as available-for-sale. During Year 2, these securities were sold at a loss equal to the unrealized loss previously recognized. The reclassification adjustment should include which of the following? A) The unrealized loss should be credited to the investment account. B) The unrealized loss should be credited to the other comprehensive income account. C) The unrealized loss should be debited to the other comprehensive income account. D) The unrealized loss should be credited to beginning retained earnings.

B) The unrealized loss should be credited to the other comprehensive income account.

Which of the following kinds of investments can result in the investor obtaining significant influence over an investee? Equity investments Debt investments A) Yes Yes B) Yes No C) No Yes D) No No

B) Yes No

On April 1, North Company issued bonds in the market. Upon issue, South Company acquired 10% of North Company's issue. On November 30, South sold the North Company bonds in the market; the bonds were acquired by East Company. On December 31, which, if any, of the following companies is an investee? North South East A) Yes Yes No B) Yes No No C) No Yes Yes D) No No Yes

B) Yes No No

Which of the following actions helps a firm to maintain compliance with a debt covenant that includes a minimum current ratio and a minimum retained earnings balance: (1) refinancing current debt on a long-term basis, (2) appropriating retained earnings, (3) purchasing treasury stock, (4) declaring cash dividends. A) 1 and 3 B) 2 and 4 C) 1 and 2 D) 1, 2 and 3

C) 1 and 2

Zinc Company does not elect to use the fair value option for reporting financial assets. An unrealized gain, net of tax, on Zinc's held-to-maturity portfolio of marketable debt securities should be reflected in the current financial statements as A) An extraordinary item shown as a direct increase to retained earnings. B) A current gain resulting from holding marketable debt securities. C) A footnote or parenthetical disclosure only. D) A valuation allowance and included in the equity section of the statement of financial position.

C) A footnote or parenthetical disclosure only.

Which of the following costs should not be included in research and development? A) Facility costs. B) Personnel costs. C) Administrative costs. D) Indirect costs.

C) Administrative costs.

Cali, Inc., had a $4,000,000 note payable due on March 15, 20x6. On January 28, 20x6, before the issuance of its 20x5 financial statements, Cali issued long-term bonds in the amount of $4,500,000. Proceeds from the bonds were used to repay the note when it came due. How should Cali classify the note in its December 31, 20x5, financial statements? A) As a current liability, with separate disclosure of the note refinancing. B) As a current liability, with no separate disclosure required. C) As a noncurrent liability, with separate disclosure of the note refinancing D) As a noncurrent liability, with no separate disclosure required

C) As a noncurrent liability, with separate disclosure of the note refinancing

Alco, Inc., a small manufacturing company, prepares its financial statements using its income tax basis of accounting. In December, 2012, it determined that an error had been made in the amount of rent expense reported in its 2011 tax return. How should Alco account for the amount of the rental expense error in its 2012 financial statements? A) As an adjustment to 2012 rental income. B) As an income tax expense in 2012. C) As a prior period adjustment. D) No reporting in 2012 required.

C) As a prior period adjustment.

ASC 270, Interim Reporting, concluded that interim financial reporting should be viewed primarily in which of the following ways? A) As useful only if activity is spread evenly throughout the year. B) As if the interim period were an annual accounting period. C) As reporting for an integral part of an annual period. D) As reporting under a comprehensive basis of accounting other than GAAP.

C) As reporting for an integral part of an annual period.

Which of the following statements, if any, concerning the modified cash basis of accounting is/are correct? I. The modified cash basis of accounting employs some elements of accrual accounting. II. To be acceptable, modifications to the cash basis of accounting must have substantial support in practice. A) I only. B) II only. C) Both I and II. D) Neither I nor II.

C) Both I and II.

Which of the following is the proper treatment of the cost of equipment used in research and development activities that will have alternative future uses? A) Expensed in the year in which the research and development project started. B) Capitalized and depreciated over the term of the research and development project. C) Capitalized and depreciated over its estimated useful life. D) Either capitalized or expensed, but not both, depending on the term of the research and development project

C) Capitalized and depreciated over its estimated useful life.

A company has outstanding accounts payable of $30,000 and a short-term construction loan in the amount of $100,000 at year end. The loan was refinanced through issuance of long-term bonds after year end but before issuance of financial statements. How should these liabilities be recorded in the balance sheet? A) Long-term liabilities of $130,000 B) Current liabilities of $130,000 C) Current liabilities of $30,000, long-term liabilities of $100,000 D) Current liabilities of $130,000, with required footnote disclosure of the refinancing of the loan

C) Current liabilities of $30,000, long-term liabilities of $100,000

A firm is required by its creditors to maintain a 2.00 (or greater) current ratio in order to maintain compliance with a debt covenant. The current ratio of the firm is currently at the minimum before any of the transactions are listed. Which of the following actions would cause the firm to fall out of compliance? A) Sell a used plant asset at book value. B) Pay an account payable. C) Declare cash dividends. D) Pay cash dividends previously declared.

C) Declare cash dividends.

Which of the following is not one of the qualitative factors considered to determine if it is more likely than not that the reporting unit is less than its carrying value? A) Industry and market conditions, such as deterioration in the industry environment, increased competition, decline in market-dependent multiples, change in the market for the entity's products or services, or a regulatory or political development. B) Cost factors, such as increases in raw materials, labor or other costs that have a negative effect on earnings and cash flows. C) Decline in the implied goodwill by using a discounted cash flow model. D) Overall financial performance, such as negative cash flows or actual or projected declines in revenues, earnings or cash flows

C) Decline in the implied goodwill by using a discounted cash flow model.

Conlon Co. is the plaintiff in a patent-infringement case. Conlon has a high probability of a favorable outcome, and can reasonably estimate the amount of the settlement. What is the proper accounting treatment of the patent infringement case? A) A gain contingency for the minimum estimated amount of the settlement. B) A gain contingency for the estimated probable settlement. C) Disclosure in the notes only. D) No reporting is required at this time.

C) Disclosure in the notes only.

On April 1, North Company issued bonds in the market. Upon issue, South Company acquired 10% of North Company's issue. On November 30, South sold the North Company bonds in the market, and the bonds were acquired by East Company. On December 31, which one of the companies, if any, is an investor? A) North Company B) South Company C) East Company D) None of the companies is an investor.

C) East Company

Choose the best description of accretion expense associated with an asset retirement obligation. A) Interest expense B) Finance charge C) Growth in asset retirement obligation D) Depletion expense

C) Growth in asset retirement obligation

Clara Corp. does not elect to use the fair value option to report financial assets. For marketable debt securities included in Clara's held-to-maturity portfolio, which of the following amounts should be included in the period's net income? I. Credit losses during the period II. Gains on securities sold during the period III. Write-off of HTM debt security to the credit allowance A) III only B) II only C) I and II D) I, II, and III

C) I and II

On February 1, year 1, Blake Corporation issued bonds with a fair value of $1,000,000. Blake prepares its financial statements in accordance with IFRS. What methods may Blake use to report the bonds on its December 31, year 1 statement of financial position? I. Amortized cost. II. Fair value method. III. Fair value through profit or loss. A) I only. B) II only. C) I and III only. D) III only.

C) I and III only.

Which of the following is an indication that a cloud computing arrangement includes a software license? I. The customer has contractual right to take possession of the software at any time during the hosting period without significant penalty. II. The cloud computing arrangement has an indefinite life because the contract is renewable indefinitely. III. It is feasible for the customer to either run the software on its own hardware or contract with another party unrelated to the vendor to host the software. A) I., II., and III. B) I. and II. C) I. and III. D) II. and III.

C) I. and III.

Choose the correct statement concerning the classification of a liability when a firm is subject to a debt covenant. A) All liabilities callable on demand are classified as current in all circumstances. B) If the liability is callable on demand and the covenant is violated, then the liability is classified as current if the violation is waived by the creditor. C) If the covenant includes a subjective acceleration clause and there is only a remote chance that debt will be called, then the liability is classified as noncurrent. D) If a covenant grants a grace period during which it is possible that the violation will be cured, then the liability is classified as noncurrent.

C) If the covenant includes a subjective acceleration clause and there is only a remote chance that debt will be called, then the liability is classified as noncurrent.

Which of the following is reported as interest expense? A) Pension cost interest. B) Postretirement healthcare benefits interest C) Imputed interest on noninterest-bearing note D) Interest incurred to finance construction of machinery for own use

C) Imputed interest on noninterest-bearing note

Grim Corporation operates a plant in a foreign country. It is probable that the plant will be expropriated. However, the foreign government has indicated that Grim will receive a definite amount of compensation for the plant. The amount of compensation is less than the fair market value but exceeds the carrying amount of the plant. The contingency should be reported A) As a valuation allowance as a part of stockholders' equity. B) As a fixed asset valuation allowance account. C) In the notes to the financial statements. D) In the income statement.

C) In the notes to the financial statements.

How are discontinued operations that occur at midyear initially reported? A) Disclosed only in the notes to the year-end financial statements. B) Included in net income and disclosed in the notes to the year-end financial statements. C) Included in net income and disclosed in the notes to interim financial statements. D) Disclosed only in the notes to interim financial statements.

C) Included in net income and disclosed in the notes to interim financial statements.

When a set of financial statements is prepared using the cash basis or the modified cash basis of accounting, which one of the following is least likely to be an appropriate financial statement title? A) Statement of Cash Receipts and Cash Disbursements. B) Balance Sheet. C) Income Statement. D) Statement of Financial Position.

C) Income Statement.

For which of the following income statement sections is earnings per share calculated? A) Sales. B) Gross profit. C) Income before discontinued operations. D) Dividends paid to common shareholders.

C) Income before discontinued operations.

A firm selling put options to sell the firm's stock A) Increases owners' equity for the fair value of the options. B) Does not recognize any change in its financial position at sale of the options. C) Increases a liability for the fair value of the options. D) Records an expense equal to the fair value of the options.

C) Increases a liability for the fair value of the options.

In which one of the following cases is an investor most likely to use the equity method to carry and report an investment in an investee? A) Investor owns 15% of the voting stock of the investee and has no other affiliation with the investee. B) Investor owns 40% of the voting stock of the investee, and the investee is in bankruptcy. C) Investor is a manufacturing firm that owns 25% of the voting stock of a consulting firm. D) Investor owns 30% of the voting stock of the investee but is unable to obtain representation on the investee's Board of Directors or obtain significant information from the investee.

C) Investor is a manufacturing firm that owns 25% of the voting stock of a consulting firm.

The treasury stock method of entering stock options into the calculation of diluted EPS: A) Is used only for dilutive treasury stock. B) Computes the increase in common shares outstanding from assumed exercise of options to be the number of shares under option. C) Is called the treasury stock method because the proceeds from assumed exercise are assumed to be used to purchase treasury stock. D) Assumes the treasury shares are purchased at year-end.

C) Is called the treasury stock method because the proceeds from assumed exercise are assumed to be used to purchase treasury stock.

Which of the following statements correctly describes the proper accounting for nonmonetary exchanges that are deemed to have commercial substance? A) It defers any gains and losses. B) It defers losses to the extent of any gains. C) It recognizes gains and losses immediately. D) It defers gains and recognizes losses immediately.

C) It recognizes gains and losses immediately.

Grayson Co. incurred significant costs in defending its patent rights. Which of the following is the appropriate treatment of the related litigation costs? A) Litigation costs would be capitalized regardless of the outcome of the litigation. B) Litigation costs would be expensed regardless of the outcome of the litigation. C) Litigation costs would be capitalized if the patent right is successfully defended. D) Litigation costs would be capitalized only if the patent was purchased rather than internally developed.

C) Litigation costs would be capitalized if the patent right is successfully defended.

An investor purchased a bond as a long-term investment between interest dates at a premium. At the purchase date, the cash paid to the seller is A) The same as the face amount of the bond. B) The same as the face amount of the bond plus accrued interest. C) More than the face amount of the bond. D) Less than the face amount of the bond.

C) More than the face amount of the bond

When the equity method is used to account for investments in common stock, which of the following affects the investor's reported investment income? - Goodwill amortization related to purchase - Cash dividends from investee A) Yes Yes B) No Yes C) No No D) Yes No

C) No No

Which, if any, of the following grants the investor ownership rights? Bond investment Common stock investment A) Yes Yes B) Yes No C) No Yes D) No No

C) No Yes

In a modification of the terms, troubled debt restructure of type II (sum of new flows > book value of debt), what amount of gain is recognized by the debtor? A) The difference between the book value of the debt and the sum of new cash flows. B) The difference between the present value of the new flows using the original rate of interest and the book value of the debt. C) No gain is recognized. D) The difference between the present value of the new flows using the new rate of interest (based on the restructured flows) and the book value of the debt

C) No gain is recognized.

A company reported $6 million of goodwill in last year's statement of financial position. How should the company account for the reported goodwill in the current year? A) Determine the current year's amortizable amount and report the current-year's amortization expense. B) Determine whether the fair value of the reporting unit is greater than the carrying amount and report a gain on goodwill in the income statement. C) Perform a qualitative assessment to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying value. D) Determine whether the fair value of the reporting unit is greater than the carrying amount and report the recovery of any previous impairment in the income statement.

C) Perform a qualitative assessment to determine if it is more likely than not that the fair value of the reporting unit is less than its carrying value.

Which one of the following is not an other comprehensive basis of accounting? A) Pure cash basis. B) Modified cash basis. C) Pure accrual basis. D) Income tax basis.

C) Pure accrual basis.

Which one of the following is not considered an equity investment for investment accounting purposes? A) Common stock warrants B) Preferred stock C) Redeemable preferred stock D) Common stock options

C) Redeemable preferred stock

Which of the following should a company classify as a research and development expense? A) Periodic design changes to existing products. B) Routine design of tools, jigs, molds, and dies. C) Redesign of a product prerelease. D) Legal work on patent applications.

C) Redesign of a product prerelease.

A company has a 22% investment in another company that it accounts for using the equity method. Which of the following disclosures should be included in the company's annual financial statements? A) The names and ownership percentages of the other stockholders in the investee company B) The reason for the company's decision to invest in the investee company C) The company's accounting policy for the investment D) Whether the investee company is involved in any litigation

C) The company's accounting policy for the investment

Assume an entity is holding an equity security where there is not a readily determinable fair value. Which of the following is not a factor to consider in the evaluation of potential impairment? A) A significant deterioration in the earnings performance, credit rating, asset quality, or business outlook of the investee B) A significant adverse change in the regulatory, economic, or technological environment of the investee C) The costs associated with gathering data on similar investments, researching valuation methodologies, and the cost to hire a valuation consultant D) A significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates

C) The costs associated with gathering data on similar investments, researching valuation methodologies, and the cost to hire a valuation consultant

Wood Co.'s dividends on noncumulative preferred stock have been declared but not paid. Wood has not declared or paid dividends on its cumulative preferred stock in the current or the prior year and has reported a net loss in the current year. For the purpose of computing basic earnings per share, how should the income available to common stockholders be calculated? A) The current-year dividends and the dividends in arrears on the cumulative preferred stock should be added to the net loss, but the dividends on the noncumulative preferred stock should NOT be included in the calculation. B) The dividends on the noncumulative preferred stock should be added to the net loss, but the current-year dividends and the dividends in arrears on the cumulative preferred stock should NOT be included in the calculation. C) The dividends on the noncumulative preferred stock and the current-year dividends on the cumulative preferred stock should be added to the net loss. D) Neither the dividends on the noncumulative preferred stock nor the current-year dividends and the dividends in arrears on cumulative preferred stock should be included in the calculation.

C) The dividends on the noncumulative preferred stock and the current-year dividends on the cumulative preferred stock should be added to the net loss.

Under IFRS, the test for asset impairment is to compare the carrying value of the intangible asset to its recoverable amount. Which of the following is the recoverable amount according to IFRS? A) The greater of future undiscounted cash flows or future discounted cash flows. B) The greater of future discounted cash flows or fair value. C) The greater of fair value less cost to sell or value in use. D) The greater of fair value or value in use.

C) The greater of fair value less cost to sell or value in use.

In its financial statements, Pulham Corp. uses the equity method of accounting for its 30% ownership of Angles Corp. At December 31, Year 2, Pulham has a receivable from Angles. How should the receivable be reported in Pulham's Year 2 financial statements? A) None of the receivable should be reported, but the entire receivable should be offset against Angles' payable to Pulham. B) Seventy percent of the receivable should be separately reported, with the balance offset against 30% of Angles' payable to Pulham. C) The total receivable should be disclosed separately. D) The total receivable should be included as part of the investment in Angles without a separate disclosure.

C) The total receivable should be disclosed separately.

On December 31, 20x5, special insurance costs, incurred but unpaid, were not recorded.If these insurance costs were related to work-in-process, what is the effect of the omission on accrued liabilities and retained earnings in the December 31, 20x5 balance sheet? Accrued liabilities Retained earnings A) No effect No effect B) No effect Overstated C) Understated No effect D) Understated Overstated

C) Understated No effect

The credit losses associated with the impairment of debt securities are not recognized in which of the following circumstances? A) When the entity has the positive ability and intent to sell the impaired security B) When the entity has the positive ability and intent to hold the impaired security C) When the entity has positive ability and intent to hold the impaired security and expects to recover the entire cost basis of the impaired security D) When the entity has positive ability and intent to hold the impaired security and does not expect to recover the entire cost basis of the impaired security

C) When the entity has positive ability and intent to hold the impaired security and expects to recover the entire cost basis of the impaired security

At December 31, 2004, Taos Co. estimates that its employees have earned vacation pay of $100,000. Employees will receive their vacation pay in 2005. Should Taos accrue a liability at December 31, 2004 if the rights to this compensation accumulated over time or if the rights are vested? Accumulated Vested A) Yes No B) No No C) Yes Yes D) No Yes

C) Yes Yes

On January 31, 2004, Pack, Inc. split its common stock 2 for 1, and Young, Inc. issued a 5% stock dividend. Both companies issued their December 31, 2003, financial statements on March 1, 2004. Should Pack's 2003 earnings per share (EPS) take into consideration the stock split, and should Young's 2003 EPS take into consideration the stock dividend? Pack's 2003 EPS Young's 2003 EPS A) Yes No B) No No C) Yes Yes D) No Yes

C) Yes Yes

For a public business entity, the goodwill impairment test is required to be performed A) Only at the end of the fiscal year. B) Only at the beginning of the fiscal year. C) Any time during the last quarter of the fiscal year. D) Any time during the fiscal year, provided that it is performed at the same time every year.

D) Any time during the fiscal year, provided that it is performed at the same time every year.

Band Co. uses the equity method to account for its investment in Guard, Inc. common stock. How should Band record a 2% stock dividend received from Guard? A) As dividend revenue at Guard's carrying value of the stock B) As dividend revenue at the market value of the stock C) As a reduction in the total cost of Guard stock owned D) As a memorandum entry, reducing the unit cost of all Guard stock owned

D) As a memorandum entry, reducing the unit cost of all Guard stock owned

Under ASC Topic 350, goodwill should be tested periodically for impairment A) For the entity as a whole. B) At the subsidiary level. C) At the industry segment level. D) At the operating segment level or one level below.

D) At the operating segment level or one level below.

Which of the following accounting strategies (for financial reporting purposes) is the least likely for a firm that is currently only marginally fulfilling the quantitative measures (all involving earnings) of its debt covenants? A) Using straight-line depreciation. B) Changing to FIFO C) Using the weighted average method for capitalizing interest during times of reduced interest rates, rather than the specific method. D) Changing to the successful efforts method of accounting for natural resource exploration costs.

D) Changing to the successful efforts method of accounting for natural resource exploration costs.

Which of the following types of assets would typically be reported on a company's balance sheet as an intangible asset? A) Derivative securities B) Cost of research and development C) Leasehold improvements D) Cost of patent registrations

D) Cost of patent registrations

Management can estimate the amount of the loss that will occur if a foreign government expropriates some company assets. If expropriation is reasonably possible, a loss contingency should be: A) Neither accrued as a liability nor disclosed. B) Accrued as a liability but not disclosed. C) Disclosed and accrued as a liability. D) Disclosed but not accrued as a liability.

D) Disclosed but not accrued as a liability.

At December 31, Year 5, Creole Co. was suing a competitor for patent infringement. The award from the probable favorable outcome could be reasonably estimated. Creole's Year 5 financial statements should report the expected award as a: A) Receivable and revenue. B) Receivable and reduction of patent. C) Receivable and deferred revenue. D) Disclosure by footnote only.

D) Disclosure by footnote only.

A company's research department incurred $1,000,000 in material, labor, and overhead costs to construct a prototype of a new product and $100,000 to test and modify the prototype. Which of the following statements correctly describes the accounting treatment of prototype costs incurred by the company? A) Capitalize $1,100,000 and amortize it over the expected sales life of the new product. B) Capitalize $1,100,000 and amortize it over the life of the prototype. C) Capitalize $1,000,000 and amortize it over the life of the prototype and expense $100,000 as incurred. D) Expense $1,100,000 as incurred.

D) Expense $1,100,000 as incurred.

Wind Co. incurred organization costs of $6,000 at the beginning of its first year of operations. How should Wind treat the organization costs in its financial statements in accordance with GAAP? A) Never amortized. B) Amortized over 60 months. C) Amortized over 40 years. D) Expensed immediately.

D) Expensed immediately.

The method of accounting for debt investments is based on the investor's intent for holding the investment. When investor intent changes, the classification of and accounting for the debt investment changes. When debt investments are transferred between classifications, which one of the following valuation basis is most likely to be used when recording the investment in the new classification? A) Historic cost B) Amortized cost C) Prior carrying value D) Fair value

D) Fair value

Which of the following is a pair of values that are compared to determine the amount of a possible impairment loss on an intangible asset, with an indefinite life, other than goodwill? A) Fair value, present value. B) Carrying value, book value. C) Future value, carrying value. D) Fair value, carrying value.

D) Fair value, carrying value.

Due to a decline in market price in the second quarter, Petal Co. incurred an inventory loss. The market price is expected to return to previous levels by the end of the year. At the end of the year, the decline had not reversed. When should the loss be reported in Petal's interim income statements? A) Ratably over the second, third, and fourth quarters. B) Ratably over the third and fourth quarters. C) In the second quarter only. D) In the fourth quarter only.

D) In the fourth quarter only.

Solen Co. and Nolse Co. exchanged trucks with fair values in excess of carrying amounts. In addition, Solen paid Nolse to compensate for the difference in truck values. The exchange lacks commercial substance. As a consequence of the exchange, Solen recognizes A) A gain equal to the difference between the fair value and carrying amount of the truck given up. B) A gain determined by the proportion of cash paid to the total consideration. C) A loss determined by the proportion of cash paid to the total consideration. D) Neither a gain nor a loss.

D) Neither a gain nor a loss.

Stock dividends on common stock should be recorded at their fair value by the investor when the related investment is accounted for under which of the following methods? Cost Equity A) Yes Yes B) Yes No C) No Yes D) No No

D) No No

Why do preferred stock dividends appear in the calculation of earnings per share (EPS)? A) Preferred stock may be converted into common stock at the option of the shareholder. B) Preferred stock dividends are not included in the calculation of EPS unless they have been outstanding for the entire year. C) The denominator includes the weighted average number of shares of both preferred and common shares outstanding. D) Preferred stock dividends are subtracted from the earnings for the period in the calculation of earnings per share.

D) Preferred stock dividends are subtracted from the earnings for the period in the calculation of earnings per share.

Which of the following is not an indication that an equity security has readily determinable fair value? A) Sales prices or bid-and-ask quotations are currently available on a securities exchange. B) Prices or quotations are in a foreign market that has the breadth and scope of the U.S. markets. C) Prices or quotations for investments are published based on current transactions. D) Prices must be estimated based on similar securities in inactive markets.

D) Prices must be estimated based on similar securities in inactive markets.

U.S. Securities and Exchange Commission (SEC) regulations for the financial statement presentation and disclosure requirements of SEC filings can be found in A) Regulation S-B. B) Regulation S-K. C) Regulation S-T. D) Regulation S-X.

D) Regulation S-X.

A firm's debt to equity ratio (total debt to total owners' equity) cannot exceed 3.0 without allowing a major creditor to call a loan to the firm. The ratio is currently at the maximum before any of the transactions are listed. Which of the following transactions would not subject the firm to an immediate call by the creditor? A) Recognize an increase in the current deferred income tax liability. B) Purchase treasury stock for less than its original issue price. C) Purchase treasury stock for more than its original issue price. D) Retire a different loan by issuing common stock.

D) Retire a different loan by issuing common stock.

A bond issued on June 1, Year 1, has interest payment dates of April 1 and October 1. The bond interest expense for the year ended December 31, year 1 is for a period of A) Three months. B) Four months. C) Six months. D) Seven months.

D) Seven months.

Under IFRS, which of the following is a criterion, other than goodwill, that must be met in order for an item to be recognized as an intangible asset? A) The item's fair value can be measured reliably. B) The item is part of the entity's activities aimed at gaining new scientific or technical knowledge. C) The item is expected to be used in the production or supply of goods or services. D) The item is identifiable and lacks physical substance.

D) The item is identifiable and lacks physical substance.

Which of the following methods should a company use to account for a contingent liability when the loss is probable but not reasonably estimated? A) The liability should not be reported. B) The liability should be reported as a short-term liability. C) The liability should be reported as a long-term liability. D) The liability should only be disclosed in the notes to the financial statements.

D) The liability should only be disclosed in the notes to the financial statements.

Which of the following information about threatened litigation should not be considered to determine whether an accrual is appropriate prior to an issuance of a company's financial statements? A) The period in which the underlying cause of the threatened litigation occurred. B) The degree of probability of an unfavorable outcome. C) The ability to make a reasonable estimate of the amount of loss. D) The period in which the threatened litigation became known to management.

D) The period in which the threatened litigation became known to management.

If a company that is not a public business entity wants to apply the simplified hedge accounting approach to a cash flow hedge of a variable rate borrowing with a receive-variable, pay-fixed interest rate swap, which of the following is a condition that must be met? A) The notional value of the swap is greater than the principal of the hedged borrowing. B) The fair value of the interest rate swap executed has a value equivalent to the hedged borrowing. C) The variable interest rate on the interest rate swap is capped at 250 basis points above the cap on the hedged borrowing. D) The variable interest rate on the interest rate swap and the variable interest rate on the hedged borrowing are linked to the same index.

D) The variable interest rate on the interest rate swap and the variable interest rate on the hedged borrowing are linked to the same index.

Vadis Co. sells appliances that include a three-year warranty. Service calls under the warranty are performed by an independent mechanic under a contract with Vadis. Based on experience, warranty costs are estimated at $30 for each machine sold. When should Vadis recognize these warranty costs? A) Evenly over the life of the warranty. B) When the service calls are performed. C) When payments are made to the mechanic. D) When the machines are sold.

D) When the machines are sold.

In a barter transaction where advertising services provided are exchanged for advertising services received, under which of the following situations can the advertising provider recognize revenue for the services performed? Assume the accounting is under IFRS guidelines. A) When the advertising services in the exchange are similar B) When the fair value of the advertising services received can be reliably measured C) When there is a nonbarter transaction for similar advertising services that can be reliably measured with the same counterparty D) When there is a nonbarter transaction for similar advertising services that can be reliably measured with a different counterparty

D) When there is a nonbarter transaction for similar advertising services that can be reliably measured with a different counterparty

A planned volume variance in the first quarter, which is expected to be absorbed by the end of the fiscal period, ordinarily should be deferred at the end of the first quarter if it is: Favorable Unfavorable A) Yes No B) No Yes C) No No D) Yes Yes

D) Yes Yes

In determining whether to accrue employees' compensation for future absences, among the conditions that must be met are that the obligation relates to rights that Accumulate Vest A) No No B) No Yes C) Yes No D) Yes Yes

D) Yes Yes

The recording of an asset retirement obligation for a natural resources development site increases which of the following for the firm involved in the site? Liability Depletion base A) No No B) No Yes C) Yes No D) Yes Yes

D) Yes Yes