OA Prep Intermediate Accounting 2

Not a required disclosures related to financial instruments?

" combining or netting the fair value of separate financial instruments."

The most common type of preferred stock is:

" cumulative preferred stock. "

Recognition of tax benefits in the loss year due to a loss carryforward requires

" the establishment of a deferred tax asset. "

In 2017, Delaney Company had revenues of $180,000 for book purposes and $150,000 for tax purposes. Delaney also had expenses of $100,000 for both book and tax purposes. If Delaney has a 35% tax rate, what are Delaney's income taxes payable for 2017?

"17,500=(150,000-100,000)*35%"

Maureen Corporation reports income taxes of $500,000 in its income statement, but because of timing differences taxable income is only $200,000. If the tax rate is 45%, what amount of net income should the corporation report?

"275,000=500,000-(500,000*45%)"

On December 1, 2014, Abel Corporation exchanged 40,000 shares of its $10 par value common stock held in treasury for a used machine. The treasury shares were acquired by Abel at a cost of $40 per share, and are accounted for under the cost method. On the date of the exchange, the common stock had a fair value of $55 per share (the shares were originally issued at $30 per share). As a result of this exchange, Abel's total stockholders' equity will increase by

"= 40,000 * 55 which = 2,200,000"

FAS No. 132

"Employer's Disclosure about Pensions and other Post-retirement benefits" -major components of pension expense -funded status -rates used in measuring the benefit amounts

In computing deferred income taxes a new tax rate should be used if (a) it is probable that a future tax rate change will occur, and (b) the rate is reasonably estimable.

"FALSE; Even if it is probable that future tax rate change will occur, if it is not yet enacted into

As its name implies, the indirect method is not directly involved with the computation of accrual based net income because it results in the presentation of a condensed cash basis income statement.

"FALSE; It is the direct method that results in the presentation of a condensed cash basis

Stock dividends and stock splits are classified as financing activities.

"FALSE; Stock dividends and stock splits are significant noncash transactions that generally

To prepare the statement of cash flows, only comparative balance sheets and a current income statement are needed.

"FALSE; To prepare the statement of cash flows, comparative balance sheets, the current

Knutson Eyewear issued 7,000 shares of common stock (par value $5) upon conversion of 7,000 shares of preferred stock (par value $3). The preferred stock initially sold for a premium of $1,400. For how much would Knutson have to debit retained earnings upon conversion?

"Preferred Stock 21,000

When a seller is exposed to continued risks of ownership through return of the product, the seller should recognize revenue:

"at the time of sale only if 6 specific conditions are met. 1. The seller's price to the buyer is substantially fixed or determinable at the date of sale. 2. The buyer has paid the seller, or the buyer is obligated to pay the seller, and the obligation is not contingent on resale of the product. 3. The buyer's obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product.

The following ARE required disclosures related to financial instruments:

"displaying as a separate classification of other comprehensive income the net gain/loss on derivative instruments designated in cash flow hedges. distinguishing between financial instruments held or issued for purposes other than trading. disclosing the fair value and related carrying value of the instruments."

An executive PAYS taxes at the time of exercise in a(an)

"nonqualified stock option plan. stock appreciation rights plan."

At December 31, 2014, Twin Rivers Company had 450,000 shares of common stock issued and outstanding, 350,000 of which had been issued and outstanding throughout the year and 100,000 of which were issued on September 1, 2014. Net income for the year ended December 31, 2014, was $1,160,000. What should be Twin Rivers' 2014 earnings per common share, rounded to the nearest penny?

$1,160,000/[350,000 + (100,000 × 4/12) = $3.03.

components of pension expense

+service costs +interest costs +amortization of prior service cost +/-actual return on plan assets +/-gain or loss

Balance of Plan Assets

1. Actual Returns 2. Contributions Made 3. Benefits Paid

share-based liability awards

1. Measure the fair value of the award at the grant date and accrue compensation over the service period. 2. Remeasure the fair value each reporting period, until the award is settled. Adjust the compensation cost each period for changes in fair value prorated for the portion of the service period completed. 3. Once the service period is completed, determine compensation expense each subsequent period by reporting the full change in market price as an adjustment to compensation expense.

Steps to classify deferred taxes on the balance sheet

1. classify amounts as current or non-current 2. determine the net current amount 3. determine the net non-current amount

The FASB decided that the upper limit for the number of segments that a company should be required to disclose is:

10; to keep from overwhelming the financial statement users

RE

12,600

Non-compensatory stock must be

5% or less

Horner Corporation has a deferred tax asset at December 31, 2015 of $160,000 due to the recognition of potential tax benefits of an operating loss carryforward. The enacted tax rates are as follows: 40% for 2012-2014; 35% for 2015; and 30% for 2016 and thereafter. Assuming that management expects that only 50% of the related benefits will actually be realized, a valuation account should be established in the amount of:

80,000.00

Unrealized Holding Gain (or Loss) on Investments

=fair value - cost

Which of the following is not a reason for the increase in disclosure requirements?

>Accounting as a control and monitoring device, >complexity of the business environment, >full disclosure principle, >necessity for timely information

Which of the following is included in the minimum lease payments?

>Bargain purchase option >Maintenance costs >Unguaranteed residual value >executory costs

Common stock dividends distributable are reported on the balance sheet as:

An addition to common stock

Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income?

An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income. (A) Subscriptions received in advance and (B) a prepaid royalty received in advance are temporary differences classified as revenues or gains that are taxable before they are recognized in financial income. (D) Interest received on a municipal obligation is a permanent difference that is recognized for financial reporting purposes but not for tax purposes.

Which is correct regarding current and deferred income tax expense? i.) Deferred income tax expense is equal to the change in deferred tax liability (or asset) on the balance sheet from the beginning of the year to the end of the year ii.) Current income tax expense is equal to the income taxes payable on the corporate tax return, assuming no estimated tax payments were made.

Both i.) and ii.)

All of the following statements are true regarding preferred stock:

Companies usually issue preferred stock with a par value. The dividend preference for preferred stock is expressed as a percentage of the par value. A company often issues preferred stock instead of debt, because of a high debt-to-equity ratio.

IFRS: The statement of changes in equity has columns for each of the following except:

Comprehensive income

Under IFRS, how are convertible debt recorded?

Convertible debt is separated into equity component and debt component.

watered stock

Created by the overvaluation of the stockholders' equity resulting from inflated asset values

Common notes to the financial statements include disclosures for all of the following except:

Credit Claims, Equity Holder's Claims, PP&E, DO NOT INCLUDE EXECUTIVE COMPENSATION

Gleim Inc. has a deductible temporary difference of $100,000 at the end of its first year of operations. Its tax rate is 40%. Income taxes payable are $90,000. Gleim properly recorded a deferred tax asset. Later, after careful review of all available evidence, it is determined that it is more likely than not that $15,000 of the deferred tax asset will not be realized. What entry should Gleim make to record the reduction in asset value?

DR Income Tax Expense and CR Allowance to Reduce Deferred Tax Asset to Expected Relaizable Value for 15K

the fair value adjustment account has a normal

DR balance

When preparing a statement of cash flows, an increase in accounts receivable during the period would cause which one of the following adjustments in determining cash flows from operating activities?

Decrease for both the direct and indirect methods; An increase in accounts receivable during the period would indicate that the amount of cash received during the period was less than the amount of sales reported as earned; therefore, under both the direct and indirect methods, there would be an adjustment decreasing the cash flows from operating activities.

The amortization of bond premium on longterm debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n):

Deduction from net income. When a bond premium exists the amortization causes the bond interest expense reported on the income statement to be smaller than the interest paid or becoming payable. Thus, because the cash outflow is larger than the deduction in arriving at net income, a deduction from net income is necessary to determine cash provided by operating activities under the indirect approach.

Deferred gross profit on installment sales is generally treated as a (n)

Deferred gross profit on installment sales is generally treated as an unearned revenue and classified as a current liability.

Issuance of a significant number of ordinary shares

Disclosed in the notes

Merger with another company of comparable size

Disclosed in the notes; because the merger took place after the balance sheet date. We do not have to consolidate statements for the prior year.

The general rule for differentiating between a change in an estimate and a correction of an error is:

Distinguishing between a change in an estimate and a correction of an error is not necessarily determined by a GAAP being involved. Also, materiality is not one of the criteria to be used in differentiating between a change in an estimate and a correction of an error. The best basis for differentiating between a change in one estimate and a correction of an error is to follow the general rule that "careful estimates that later prove to be incorrect should be considered a change in an estimate."

Which of the following statements related to dividends is incorrect?

Dividends must be paid in the period declared.

Loss of assembly plant due to fire

Extraordinary item to disclose in the notes to the financial statements

A lessee records interest expense in both a capital lease and an operating lease.

FALSE

A loan between a parent company and a subsidiary need not be disclosed since they belong to the same reporting entity.

FALSE

An irregularity is an unintentional distortion of the financial statements.

FALSE

Both IFRS and U.S. GAAP have separate standards for pensions and other postretirement obligations.

FALSE

Both pension plans and other postretirement benefits such as healthcare are generally funded.

FALSE

Deferred tax assets should not be recognized in the accounts because the fail to meet the definition of an asset

FALSE

In percentage analysis, all income statement information is reported as a percentage of net income.

FALSE

Nondeductible fines and penalties result in deferred tax assets.

FALSE

Ratio analysis identifies a company's strengths and weaknesses as well as the reasons why those strengths and weaknesses present.

FALSE

The expected postretirement benefit obligation is reported in the notes to the financial statements.

FALSE

Under the operating method, the lessor records each rental receipt as part interest revenue and part rental revenue.

FALSE

When it is impossible to differentiate between a change in estimate and correction of an error, companies should consider careful estimates that later prove to be incorrect as a correction of an error.

FALSE

A noncontributory pension plan and defined contribution plan refer to the same type of plan.

FALSE: A noncontributory pension plan is a plan wherein the employer bears the entire cost.This is different from contributory plans where the employees bear part of the cost of the stated benefits or voluntarily make payments to increase their benefits. Under a defined contribution plan, the employer agrees to contribute to a pension trust a certain sum each period based on a formula; however, oftentimes employees are also allowed to contribute.

Unlike pension accounting, the gains and losses from changes in the APBO or the value of plan assets are not subject to amortization using the corridor approach.

FALSE: Consistent with pension accounting, the gains and losses are included in accumulated other comprehensive income and amortized using the corridor approach.

Once the actuary has computed the amount of money it will take to pay for all retirement benefits for both active and retired employees, a company is best advised to fund this obligation immediately.

FALSE: Funding the pension plan obligation immediately is not a wise decision as most companies would not find immediate funding an efficient use of their liquid resources.

The difference between the vested benefit obligation and the accumulated benefit obligation concerns the use of current salaries versus future salaries in the measurement process.

FALSE: The major difference between the vested benefit obligation and the accumulated benefit obligation is that the accumulated benefit obligation includes benefits for vested and non vested employees at current salaries, whereas, the vested benefit obligation includes benefits for only vested employees at current salaries.

Companies generally present two years of balance sheet information and two years of income statement information.

FALSE; 2 years of Balance Sheet Info and 3 years of Income Statement Info

The FASB uses 75% as the guideline to determine if the present value of the lease payments is reasonably close to the fair value of the asset under the present value test.

FALSE; 90%

A lease is a contractual agreement conveying ownership of certain property from one part to another party.

FALSE; A lease is a contractual agreement conveying the rights to use property from one to another. A lease does not by definition transfer ownership. Such arrangements can be written into a lease agreement, but the transfer of ownership is not a part of all lease agreements.

An originating temporary difference is the initial difference that occurs when the book basis of an asset exceeds, but is not exceeded by, the tax basis of a liability.

FALSE; An originating temporary difference is the initial difference between the book basis and the tax basis of an asset or liability regardless of whether the tax basis of the asset or liability exceeds or is exceeded by the book basis of the asset or liability.

If a change in an accounting estimate affects current net income by an amount equal to or greater than 1% of net income, the change should be handled retrospectively.

FALSE; Changes in accounting estimates must be handled prospectively, that is, no changes should be made in previously reported results. Opening balances are not adjusted and no attempt is made to catch up for prior periods.

Deferred tax expense is the decrease in the deferred tax liability balance from the beginning to the end of the accounting period.

FALSE; Deferred tax expense is the increase in the deferred tax liability balance from the beginning to the end of the accounting period.

The present value of the unguaranteed residual value is excluded in the calculation of the minimum lease payments for the lessee, but included when calculating depreciation expense.

FALSE; From the lessee's viewpoint, an unguaranteed residual value is the same as no residual value in terms of its effect upon the lessee's method of computing the minimum lease payments and the capitalization of the leased asset and the lease liability.

If it is probable that the expected residual value is less than the guaranteed residual value, the lessee should not include the guaranteed residual value in the computation of the leased liability.

FALSE; If it is probable that the expected residual value is less than the guaranteed residual value, the difference between the expected and guaranteed residual values should be included in computation of the lease liability. If it is probable that the expected residual value is equal to or greater than the guaranteed residual value, the lessee should not include the guaranteed residual value in the computation of the leased liability.

When the direct method is used in determining cash provided by operating activities, users of the statement of cash flows are unable to reconcile the net income to the net cash provided by operations because this is only provided when the indirect method is used.

FALSE; If the direct method of reporting net cash provided by operating activities is used, the FASB requires that the reconciliation of net income to net cash provided by operating activities be provided in a separate schedule.

If the previously used accounting principle was not acceptable, a change to a generally accepted accounting principle is considered a change in principle.

FALSE; If the previously used accounting principle was not acceptable, a change to a generally accepted accounting principle is considered a correction of an error.

In a sale-leaseback transaction, if the lease includes a bargain purchase option, the seller-lessee accounts for the transaction as a sale and the lease as a capital lease, and amortizes the profit from the sale over the lease term.

FALSE; In a sale-leaseback transaction, if the lease includes a bargain purchase option, the seller-lessee accounts for the transaction as a sale are amortizes the profit from the sale over the economic life of the asset.

In a sale-leaseback transaction, if the lease term is 75% or more of the economic life of the asset, with no bargain purchase option or title transfer, the seller-lessee accounts for the transaction as a sale and the lease as a capital lease, and amortizes the profit from the sale over the economic life of the asset.

FALSE; In a sale-leaseback transaction, if the lease term is 75% or more of the economic life of the asset , the seller-lessee accounts for the transaction as a sale and amortizes the profit from the sale over the lease term.

If a cash inflow and a cash outflow result from similar type transactions, such as the purchase and sale of property, plant, and equipment or the issuance and repayment of debt, they may be shown as a net amount from the two transactions in the statement of cash flows.

FALSE; Individual inflows and outflows from investing and financing activities are reported separately. Thus, cash outflow from the purchase of property, plant, and equipment is reported separately from the cash inflow from the sale of property, plant, and equipment.

Initial direct costs incurred by the lessee are included in the cost of the lease liability but are not recorded as part of the right-of-use asset.

FALSE; Initial direct costs incurred by the lessee are included in the cost of the right-of-use asset but are not recorded as part of the lease liability.

Lease prepayments made by the lessee decrease the right-of-use asset.

FALSE; Lease prepayments made by the lessee increase the right-of-use asset.

Minimum lease payments include both a guaranteed and an unguaranteed residual value.

FALSE; Minimum lease payments do guaranteed residual value, but not unguaranteed residual value.

A permanent difference results when the tax laws cause an item reported on the income statement to be different from that same item reported on the balance sheet.

FALSE; Permanent differences are items that (1) enter into pretax financial income but never into taxable income, or (2) enter into taxable income but never into pretax financial income.

When valuing the lease liability the lessee should estimate increases or decreases to future lease payments based on variable payments that change based on increases or decreases in an index or rate.

FALSE; The lessee should include variable lease payments in the value of the lease liability at the level of the index/rate at the commencement date. When valuing the lease liability, no increases or decreases to future lease payments should be assumed based on increases or decreases in the index or rate. Instead, any difference in the payments due to changes in the index or rate is expensed in the period incurred.

Under GAAP, companies should classify all deferred taxes as noncurrent.

FALSE; Under GAAP, companies should classify the balances in the deferred tax accounts on the balance sheet as current and noncurrent based on the classification of related assets and liabilities.

Under an operating lease, the lessor generally records a Lease Receivable and eliminates the leased asset.

FALSE; Under a sales-type lease, the lessor generally records a Lease Receivable and eliminates the leased asset. Under an operating lease, the lessor generally continues to recognize the asset on its balance sheet and recognized lease revenue in each period.

When a company changes an accounting principle it should not adjust any assets or liabilities.

FALSE; When a company changes an accounting principle it adjusts the carrying amounts of assets and liabilities as of the beginning of the first year presented.

Permanent differences result in deferred tax consequences.

FALSE; When a difference is permanent there can be no subsequent consequences

When a lease is classified as an operating lease, the lessee continues to report a separate interest expense.

FALSE; When a lease is classified as an operating lease, the lessee does not report a separate interest expense, instead the lessee reports interest on the lease liability as part of Lease Expense.

When determining the present value test, the incremental borrowing rate is generally a more realistic rate to use in determining the amount to report as the asset and related liability.

FALSE; When determining the present value test, the implicit rate is generally a more realistic rate to use in determining the amount to report as the asset and related liability.

A lease that transfers the benefits and risks of ownership should be classified as an operating lease.

FALSE; When ownership benefits and risks are transferred the lease should be capitalized.

When the book amount of an asset or liability differs from the tax basis as a result of a temporary difference, the future tax effects on taxable income must be reported solely in the future financial statement that the difference affects.

FALSE; When the book amount of an asset or liability differs from the tax basis as a result of a temporary difference, the future tax effects on taxable income must be reported in the current financial statements.

Regardless of whether a lease is short-term or long-term, a lessee has to record a right-of-use asset and a lease liability.

FALSE; When there is a short-term lease, rather than recording a right-of-use asset and lease liability, lessees may elect to expense the lease payments as incurred.

Coverage ratios measure the company's ability to pay maturing obligations.

FALSE; coverage to investors and creditors

A deferred tax asset represents the increase in taxes payable in future years as a result of taxable temporary differences existing at the end of the current year.

FALSE; it would be a decrease in in taxes payable in future years, an increase would represent a DTL

To be deemed significant, an operating segment must have revenues that are 10% or more of the combined revenue of all operating segments and identifiable assets that are 10% or more of the combined assets of all operating segments.

FALSE; only 1 requirement need to be satisfied

When the book amount of an asset or liability differs from the tax basis as a result of a temporary difference, the future tax effects on taxable income must be reported solely in the future financial statement that the difference affects.

FALSE; reported now as a DTL or DTA

Deferred tax expense is the decrease in the deferred tax liability balance from the beginning to the end of the accounting period.

FALSE; you can't debit both the increase in deferred tax expense and a decrease in deferred tax liability and have a balanced journal entry

Trading securities are reported on the BS at

Fair Value

Both the FASB and the IASB believe that reporting fair values for financial assets and liabilities provides more useful and relevant information relative to historical cost

Fair value is the treatment for reporting financial assets and liabilities.

Companies base impairment for debt and equity securities on a(n)

Fair value test

GAAP requires that corrections of errors be handled prospectively and shown in the current operating section of the income statement in the year the correction is made.

False; The profession requires that corrections of errors be treated as prior period adjustments, be recorded in the year in which the error was discovered, and be reported in the financial statements as an adjustment to the beginning balance of retained earnings. If comparative statements are presented, the prior statements affected should be restated to correct for the error.

Costs of guarantees and warranties are estimated and accrued for financial reporting purposes

Future Deductible Amount (Asset) less is expensed on the front end so less taxes due on the back end when expenses increase

A landlord collects some rents in advance. Rents received are taxable in the period when they are received.

Future Deductible Amount (Asset) more cash is received on the front end so less taxes on the back end

Installment sales of investments are accounted for by the accrual method for financial reporting purposes and the installment-sales method for tax purposes

Future Taxable Amount (Liability) because more Revenue is recognized later for tax purposes

MACRS depreciation system is used for tax purposes, and the straight-line depreciation method is used for financial reporting purposes

Future Taxable Amount (Liability) because more depreciation is taken on the front end by MACRS

The IFRS term "reserves" refers to

Gain Loss on revaluation of PP&E, RE, and Fair Value differences

Which of the following debt securities are accounted for at amortized cost and not fair value?

Held-to-maturity debt securities

Which of the following debt securities have no recognized unrealized holding gains or losses in net income and are excluded from other comprehensive income?

Held-to-maturity debt securities

With regard to contracts that can be settled in either cash or shares

IFRS requires that share settlement must be used.

Bank overdrafts

IFRS-cash and cash equivalents GAAP-financing activity

In the diluted earnings per share computation, the treasury stock method is used for options and warrants to reflect assumed reacquisition of common stock at the average market price during the period. If the exercise price of the options or warrants exceeds the average market price, the computation would

If the exercise price of the options or warrants exceeds the average market price, the computation would be antidilutive.

n computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the

In a simple capital structure an amount equal to the dividend that should have been declared for the current year only is subtracted from net income.

The method used to compute net cash provided by operating activities that adjusts net income for items that affected reported net income but did not affect cash is known as the:

Indirect Method

Which of the following is a permanent difference?

Interest received on state and municipal obligations.

Which of the following would not be included in the Summary of Significant Accounting Policies note?

Inventory Valuation Method, Depreciation Method, How Marketing Costs are Reported, Tax Accounting Method

Treasury Stock Method

Method of measuring the dilutive effects on EPS of stock options and warrants outstanding. This method assumes that a company exercises the options or warrants and uses those proceeds to purchase common stock for the treasury at the average price of common shares during the period. If such purchases result in dilution (assuming the market price of the stock is above the exercise price), the company reports potential common shares in its diluted EPS.

All of the following statements are the key similarities and differences between GAAP and IFRS related to dilutive securities and earnings per share

Modification of a share option results in the recognition of any incremental fair value under both IFRS and GAAP. However, if the modification leads to a reduction, IFRS does not permit the reduction but GAAP does. IFRS and GAAP follow the same model for recognizing stock-based compensation: the fair value of shares and options awarded to employees is recognized over the period to which the employees' services relate. A significant difference in IFRS and U.S. GAAP exists with respect to the accounting for convertible debt.

Cashman Company reported net income after taxes of $85,000 for the year ended 12/31/17. Included in the computation of net income were: depreciation expense, $15,000; amortization of a patent, $8,000; income from an investment in common stock of Linda Inc., accounted for under the equity method, $12,000; and amortization of a bond premium, $3,000. Cashman also paid a $20,000 dividend during the year. The net cash provided by operating activities would be reported at:

NI 85 + Depr Exp 15 + Amort Pat 8 + Inv Income (12) + Bond Premium (3) = 93 ; Ignore the dividends bc they are not related to dividends from Linda Inc.

Sale of a significant portion of the company's assets

Needs to be disclosed in the financial statements because if a company is selling assets other than inventory it indicates that there is a cash flow problem if the old assets are not being replaced by new ones.

Hiring of a new president

Neither

Loss of a significant customer

Neither

Prolonged employee strike

Neither

Retirement of the company president

Neither

The reporting of which of the following would typically result in a deferred tax liability? i.) Warranty Expense, ii.) Bad debt expense

Neither; because both will result in future expenses which will reduce your tax base, not increase it

Theoretically, in computing the accounts receivable turnover, the numerator should include

Net Credit Sales

BV per share is used to calculate a company's

Net worth

Introduction of a new product line

Non-economic transaction neither adjust or disclose

What will the numerator of the diluted EPS calculation consist of when convertible preferred stock is being included?

Only net income because it is assumed that the convertible preferred shares have been converted and are outstanding as common shares.

Under the cost method, when treasury stock is sold for more than its cost, the excess is credited to:

Paid-in Capital from Treasury Stock.

Expenses are incurred in obtaining tax exempt income

Permanent Difference

Proceeds are received from a life insurance company because of the death of a key officer (the company carries a policy on key officers)

Permanent Difference

Which of the following are temporary differences that are normally classified as expenses or losses that are deductible after they are recognized in financial income?

Product warranty liabilities are temporary differences normally classified as expenses or losses that are deductible after they are recognized in financial income.(A) Advance rental receipts are temporary differences that are normally classified as revenues or gains that are taxable before they are recognized in financial income.(C) Depreciable property is a temporary difference that is normally classified as expenses or losses that are deductible before they are recognized in financial income. (D) Fines and expenses resulting from a violation of law are permanent differences that are normally recognized for financial reporting purposes but not for tax purposes.

Which of the following are temporary differences that are normally classified as expenses or losses and are deductible after they are recognized in financial income?

Product warranty liabilities.

Which of the following are temporary differences that are normally classified as expenses or losses that are deductible after they are recognized in financial income?

Product warranty liabilities.

FASB says what should be used for determining service cost

Projected benefit obligation

Change from sum-of-the-years'-digits to straight-line method of depreciation.

Prospective

Change in a patent's amortization period.

Prospective

Change in a plant asset's salvage value.

Prospective

Change in the rate used to compute warranty costs.

Prospective

Companies generally design pension plans that are

QUALIFIED this is to take advantage of federal income tax benefits

If the financial statements examined by an auditor lead the auditor to issue an opinion that contains an exception that is not of sufficient magnitude to invalidate the statements as a whole, the opinion is said to be

Qualified

A change in dividends payable does not affect Net Income, it affects

RE

When a stock dividend is less than 20-25% of the CS OS a company is required to transfer the fair value of the stock issued from

RE

earned capital

RE aka capital that develops from profitable operations

Which of the following features of preferred stock makes the security more like debt than an equity instrument?

Redeemable

All of the following are characteristics of a derivative financial instrument the instrument

Requires or permits netting. Has one or more underlyings and an identified payment provision. Requires a small investment at the inception of the contract.

Jackson Corporation issued a 100% stock dividend of its common stock which had a par value of $.01, and a market value of $123 before the dividend and $62 after the dividend. At what amount should retained earnings be capitalized for the additional shares issued?

Retained earnings is reduced by an amount equal to the number of shares issued times the par value per share.

Change due to overstatement of inventory.

Retrospective

Change from FIFO to average cost inventory method.

Retrospective

Change from LIFO to FIFO inventory method.

Retrospective

Change from an unacceptable accounting principle to an acceptable accounting principle.

Retrospective

Change from completed-contract to percentage-of-completion method on construction contracts.

Retrospective

Change from presenting unconsolidated to consolidated financial statements.

Retrospective

if investors want to determine if a company is profitable for its owners, which ratio should they use

Return on CS equity

Which one of the following amounts would differ in a sales-type lease with an unguaranteed residual value instead of a guaranteed residual value?

Sale price of the asset

The lessor expenses initial direct costs in the year of incurrence in a(n)

Sales-type lease

Which of the following Federal Acts requires the SEC to develop guidelines for all publicly traded companies to report on management's responsibilities for, and assessment of, the internal control system?

Sarbanes-Oxley Act

The following is ARE characteristics of a noncompensatory stock option plans?

Substantially all full-time employees may participate on an equitable basis. The plan offers no substantive option feature. Discount from the market price of the stock no greater than would be reasonable in an offer of stock to stockholders or others.

A bargain purchase option affects the accounting for leases in the same way as a guaranteed residual value with a probable amount to be owed.

TRUE

A change from an accounting principle that is not generally accepted to an accounting principle that is acceptable should be treated as an accounting error.

TRUE

A corporation that has tax-free income has an effective tax rate that is less than the statutory (regular) tax rate.

TRUE

A deferred tax asset should be reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized.

TRUE

A deferred tax liability is the amount of deferred tax consequences attributable to existing temporary differences that will result in net taxable amounts in future years.

TRUE

A lessee does not include an unguaranteed residual value in the computation of the lease liability, whether it is a finance lease or an operating lease.

TRUE

A temporary difference is the difference between the tax basis of an asset or liability and its reported amount in the financial statements that will result in taxable amounts or deductible amounts in future years.

TRUE

A temporary difference is the difference between the tax basis of an asset or liability and its reported amount in the financial statements that will result in taxable or deductible amounts in future years.

TRUE

Accounting alternatives diminish the comparability of financial information between periods and between companies. They also obscure useful historical trend data.

TRUE

All positive and negative information should be considered in determining whether a valuation allowance is needed.

TRUE

An advantage of leasing for the lessee is protection against obsolescence.

TRUE

An objective of accounting for income taxes is to recognize deferred tax liabilities and assets for the future tax consequences of events that have already been recognized in the financial statements.

TRUE

Cash flows from events whose effects are included in net income, but which are not related to operations, should be reported either as investing activities or as financing activities.

TRUE

Companies must disclose a reconciliation of how the projected benefit obligation and the fair value of plan assets changed during the year either in their financial statements or in the notes.

TRUE

Companies should classify the balances in the deferred tax accounts on the balance sheet as current and noncurrent based on the classification of related assets and liabilities.

TRUE

Direct-financing leases are in substance the financing of an asset purchase by the lessee.

TRUE

Executory costs included in the fixed payments required by the lessor should be included in lease payments for purposes of measuring the lease liability.

TRUE

For classification purposes, a lessee includes the full amount of a residual value guarantee at the end of the lease term in the present value test.

TRUE

For leases classified as operating, the lessee records a right-of-use asset and lease liability at commencement of the lease, similar to the finance lease approach.

TRUE

From the lessee's viewpoint, an unguaranteed residual value is the same as no residual value in terms of computing the minimum lease payments.

TRUE

If a lease contains a bargain purchase option, the lessee shall classify and account for the arrangement as a finance lease.

TRUE

If an FASB standard creates a new principle, expresses preference for, or rejects a specific accounting principle, the change is considered clearly acceptable.

TRUE

In a vertical analysis, all income statement information is reported as a percentage of total revenue.

TRUE

In percentage analysis, all income statement information is reported as a percentage of net sales.

TRUE

Initial direct costs are incremental costs of a lease that would not have been incurred had the lease been executed.

TRUE

Liquidity ratios measure the company's ability to pay maturing obligations by examining the relationship between current assets and current liabilities.

TRUE

Multiple categories of deferred taxes should be classified into a net current amount and a net noncurrent amount.

TRUE

Nonrecognized subsequent events are events that provide evidence about conditions that did not exist at the balance sheet date but arise subsequent to that date.

TRUE

Operating activities as defined by GAAP, involve the cash effects of transactions that enter into the determination of net income.

TRUE

The concept of a deferred tax liability meets the definition of a liability established according to GAAP because it a.) results from past transactions, b.) is a present obligation, and c.) represents a future sacrifice

TRUE

The conversion of net income to net cash provided by operating activities may be accomplished using either the direct method or the indirect method.

TRUE

The direct method is more consistent with the objective of the statement of cash flows because it shows operating cash receipts and payments where the indirect method does not.

TRUE

The discount rate used for measuring the present value of the postretirement benefit obligation and the service cost component is the same as that applied to the pension measurements.

TRUE

The information in a statement of cash flows should help investors, creditors, and others to assess the reasons for the difference between net income and net cash flow from operating activities.

TRUE

The lease classification tests for the lessor are identical to the tests used by the lessee to determine classification of a lease as a financing or operating lease.

TRUE

The principal advantage of the indirect method is that it focuses on the difference between net income and net cash provided by operating activities, thus providing a useful link between the statement of cash flows, the income statement, and the balance sheet.

TRUE

The statement of cash flows provides information not available from other financial statements.

TRUE

The statement of cash flows provides information to help investors and creditor assess the cash and noncash investing and financing transactions during the period

TRUE

To derive meaning from ratios, analysts must have some standard against which to compare them.

TRUE

When a pension plan is funded, the company sets aside funds for future pension benefits by making payments to a funding agency that is responsible for accumulating the assets of the pension fund

TRUE

When the lease term is a major part of the remaining economic life of the leased asset, companies should use the finance method in accounting for the lease transaction.

TRUE

When the lessee agrees to make up any deficiency below a stated amount that the lessor realizes in residual value, that stated amount is the guaranteed residual value.

TRUE

Whenever it is impossible to determine whether a change in principle or a change in estimate has occurred, the change should be considered a change in estimate.

TRUE

Companies generally present two years of balance sheet information and two years of income statement information.

TRUE; 2 years of Balance Sheet Info and 3 years of Income Statement Info

In an operating lease, the lessee recognizes interest expense on the lease liability over the life of the lease using the effective-interest method and records the amortization expense on the right-of-use asset generally on a straight-line basis.

TRUE; In a finance lease, the lessee recognizes interest expense on the lease liability over the life of the lease using the effective-interest method and records the amortization expense on the right-of-use asset generally on a straight-line basis.In an operating lease, the lessee also measures interest expense using the effective-interest method, however, the lessee amortizes the right-of-use asset such that the total lease expense is the same from period to period.

Recognition of a gain or loss on the sale-leaseback transaction by the seller-lessee depends on whether or not the seller-less will continue to use the asset after the sale or gives up the right to use the asset.

TRUE; The seller-lessee should recognize a gain or loss on the transaction if the right to use the asset is given up, but not if the asset will continue to be used after the sale.

The primary difference between a direct-financing lease and a sales-type lease is the manufacturer's or dealer's gross profit (or loss).

TRUE; a direct-financing lease only includes interest revenue not gross profit

Which of the following country systems of finance have relied more heavily on debt financing, interlocking stock ownership, banker/directors, and worker/shareholder rights?

The German & Japanese systems have relied more on debt financing, interlocking stock ownership, banker/directors, and worker/shareholder rights than the U.S and British systems.

The INDIRECT METHOD is aka

The Reconciliation Method

Fair Value Method (Stock Compensation)

The amount at which a company can exchange a financial instrument in a current transaction between willing parties. Companies account for expense related to stock options and restricted stock at fair value.

Which of the following disclosures of pension plan information would not normally be required?

The amount of prior service cost changed or credited in previous years

Which of the following disclosures of postretirement benefits would not be required by professional pronouncements?

The amount of the EPBO

Which of the following disclosures of pension plan information would not normally be required by Statement of Financial Accounting Standards No. 132, "Employers' Disclosure about Pensions and Other Postretirement Benefits"?

The amount paid from the pension fund to retirees during the period

Under the percentage-of-completion method, how should the balances of progress billings and construction in process be shown at reporting dates prior to the completion of a long-term contract?

The balances of progress billings and construction in process should be shown at net, as a current asset if a debit balance, and as a current liability if a credit balance.

Which of the following statements is true about postretirement health care benefits?

The beneficiary is the retiree, spouse, and other dependents.

Which of the following statements related to loss carrybacks and carryforwards is correct?

The benefit due to a loss carryforward can be reported in both the loss year and future years.

Which of the following is a permanent difference that is recognized for tax purposes but not for financial reporting purposes?

The deduction for dividends received from U.S. corporations is a permanent difference that is recognized for tax purposes but not for financial reporting purposes. (B) Interest received on state and municipal bonds and (C) premiums paid for life insurance carried by the company on key officers are recognized for financial reporting purposes but not for tax purposes. (D) A litigation accrual is a temporary difference that is classified as an expense or loss that is deductible after it is recognized in financial income.

intrinsic value of an option

The difference between an option's exercise price and the underlying asset's price.

The loss (gain) on repossession of merchandise is the difference between the estimated fair value of the merchandise and:

The difference between the estimated fair value of the merchandise and its unrecovered cost is the loss (gain) on repossession.

Share appreciation

The excess of the market price of the stock at the date of exercise over a pre-established price.

Which of the following lease arrangements would most likely be accounted for as an operating lease by the lessee?

The lessee may renew the two-year lease for an additional two years at the same rental. This alternative might violate the lease term test, but we are not given the economic life of the asset—so it is most likely an operating lease as in comparison to the alternatives.

Which of the following lease arrangements would most likely be accounted for as a finance lease by the lessee?

The lessee rents the truck for $1,000 a month for 10 years and after 10 years has an option to continue renting the truck for an additional 10 years at $50 per month, and the estimated life of the truck is 15 years. Alternative A presents a bargain renewal option, thus the company should include in the lease term any bargain renewal periods—which then exceeds the estimated life of the asset.

Which of the following is not one of the commonly discussed advantages of lease for the lessor?

The lessor has the right of first priority to use the leased asset since the lessor is still the owner of the asset. It often provides profitable interest margins. It can provide a high residual value to the lessor upon return of the property at the end of the lease term. It often provides tax benefits to various parties in the lease. The terms of a lease agreement generally conveys the right to use the property to the lessee, therefore the lessor usually does not have a right to the use of the property.

Who bears the ultimate responsibility for the financial statements and for the company's system of internal controls?

The management

The methods of accounting for a lease by the lessee are

The methods of accounting for a lease by the lessee are operating and capital lease methods

Crabbe Company reported $80,000 of selling and administrative expenses on its income statement for the past year. The Company had depreciation expense and an increase in prepaid expenses associated with the selling and administrative expense for the year. Assuming use of the direct method, how would these items be handled in converting the accrual based selling and administrative expense to the cash basis?

The non-cash depreciation charge should be deducted from the selling and administrative expense in converting it to the cash basis. The increase in the prepaid expense would be added to selling and administrative expense as it represents a cash outflow that was not charged to an expense account.

During 2017, Osborn Corporation, which uses the allowance method of accounting for doubtful accounts, recorded a provision for bad debt expense of $75,000 and in addition it wrote off, as uncollectible, accounts receivable of $23,000. As a result of these transactions, net cash provided by operating activities would be calculated (indirect method) by adjusting net income with a(n):

The provision for bad debt expense is a non-cash transaction that had decreased the amount of net income (or increased the amount of net loss) by $75,000. The write-off of the un-collectible accounts receivable did not affect net income (loss) or cash flow. Thus, to reflect the net cash provided by operating activities, $75,000 should be added back to net income.

Tang Corporation has a change in accounting that requires Tang to restate the financial statements of all prior periods presented and disclose in the year of change the effect on net income and earnings per share data for all prior periods presented. This change is most likely the result of a:

The question describes most closely the accounting and disclosure requirements necessary for a change in reporting entity. Alternatives A, B and D are all changes in according estimates and do not require the disclosures indicated in the question.

How should significant noncash transactions (purchase of equipment in exchange for common stock) be reported in the statement of cash flows according to GAAP?

These non-cash transactions are not to be incorporated in the statement of cash flows. They may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials.

Which of the following is one reason corporations issue convertible debt?

They can obtain financing at lower rates.

When accounting for stock warrants issued with other securities, how should the warrant and the security be treated in accounting if the warrant is detachable?

They should be treated as two separate securities.

Which one of the following is not a right of common stockholders?

To share proportionately in all management decisions.

Which of the following are debt securities bought and held primarily for sale in the near future?

Trading Debt Securities

What account is debited when treasury stock is purchased

Treasury stock for the purchase price

When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited?

Treasury stock for the purchase price.

GAAP requires that both the cost and fair value of all financial instruments be reported in the notes to the financial statements.

True.

Both IFRS and U.S. GAAP use the same test to determine whether the equity method of accounting should be used.

True. Both IFRS and U.S. GAAP use the same test of significant influence with a general guide of over 20 percent ownership to determine whether the equity method of accounting should be used.

One required disclosure for financial instrument is that a separate classification of other comprehensive income the net gain/loss on derivative instruments designated in cash flow hedges must be presented.

True. Reporting a separate classification of other comprehensive income the net gain/loss on derivative instruments designated in cash flow hedges is a required disclosure.

The fair value and related carrying value of the instrument is a required disclosures related to financial instruments.

True. The fair value and related carrying value of the instrument are required to be disclosed.

Changes due to an error result in a restatement of the beginning retained earnings balance.

True; Errors in prior period statements are accounted for as adjustments to the beginning balance of retained earnings.

Which of the following is a major difference between convertible debt and stock warrants?

Upon exercise of the warrants, the holder has to pay a certain amount of cash to obtain the shares.

The Statement of cash flows answers these questions

What was the cash used for during the period? Where did the cash come from during the period? What was the change in the cash balance during the period? The statement of cash flows, like the balance sheet and income statement, reflects the results of transactions entered into by the entity during the preceding year. The statement of cash flows could include the results of some cash flow transactions that were of great benefit and some that were of little benefit. The purpose of the statement is to reflect cash inflows and cash outflows, not to evaluate the benefits derived from the transactions. A great deal of additional information would have to be included in the statement of cash flows for a reader to evaluate the benefit of each cash receipt or expenditure recorded.

When is a formula used to develop the parameters of a pension fund?

When the plan is either a defined benefit plan or a defined contribution plan.

Total stockholders' equity represents

a claim against a portion of the total assets of a company.

Effective interest method of amortization produces what

a constant rate of return on the BV of the investments from period to period

A deferred tax valuation allowance account is used to recognize a reduction in

a deferred tax asset only.

Gulfport Corporation's taxable income differed from its accounting income computed for this past year. An item that would create a permanent difference in accounting and taxable incomes for Gulfport would be

a fine resulting from violations of OSHA regulations.

The use of accelerated depreciation for tax purposes and straight-line depreciation for accounting purposes results in:

a larger amount of depreciation expense shown on the income statement than on the tax return in the last year of the asset's useful life.

cost-to-cost method

a popular measure used to determine the progress toward completion under the % of completion method

According to GAAP, a deferred tax liability

a.) Results from a Past Transaction, b.) Is a Present Obligation, c.) Represents a Future Sacrifice

Extraordinary items that occur in interim reports are:

absorbed entirely in the quarter in which they occur.

Purpose of the Pension Benefit Guaranty Corporation

administer termed plans and to impose liens on the employer's assets for certain unfunded pension liabilities

The main purpose of the Pension Benefit Guaranty Corporation is to

administer terminated plans and to impose liens on the employer's assets for certain unfunded pension liabilities.

Under IFRS, what is recorded as compensation expense for all employee share-purchase plans?

amount of discount

Capital of a corporate organization

amounts paid-in or earned that represents STE in the corporation

​In accounting for a defined benefit pension plan:

an appropriate funding pattern must be established to insure that enough monies will be available at retirement to meet the benefits promised. The accounting for a defined benefit plan is complex. Because the benefits are defined in terms of uncertain future variables, an appropriate funding pattern must be established to insure that enough monies will be available at retirement to meet the benefits promised.The accounting for a defined benefit plan is complex. Because the benefits are defined in terms of uncertain future variables, an appropriate funding pattern must be established to insure that enough monies will be available at retirement to meet the benefits promised.

common stock dividends distributable are reported on the BS as

an increase to CS

how are cumulative preferred dividends in arrears shown on the BS

as a footnote

Failure to record depreciation expense in a given year must be accounted for:

as a prior period adjustment.

In 2013, PWT Company failed to record depreciation expense on some of its assets. When the error is discovered in 2014, it will be accounted for:

as a prior period adjustment. ONLY

FASB believes the most consistent method for accounting for income taxes is the

asset-liability method

The FASB believes that the most consistent method for accounting for income taxes is the

asset-liability method.

Plan assets include

assets that a company holds to earn a reasonable return, generally at minimum risk

Before declaring a cash dividend, management must consider the

availability of funds

If a corporation accounts for a debt security by recognizing unrealized holding gains and losses as other comprehensive income and as a separate component of stockholders' equity, they are likely

available-for-sale debt securities.

Common stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders

bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership.

The unrecognized net gain or loss balance must be amortized when it exceeds 10% of the larger of the:

beg. PBO or the Beg. market-related asset value

residual interest in a corporation belongs to the

common shareholders

The book value per share is based on

common shares outstanding.

contributed (paid-in) capital

consists of capital stock and additional paid-in capital

under the completed contract method, the CIP account balance will consist of

construction costs only

In preparing the auditor's report, the auditor follows all of the following reporting standards except the report shall:

contain either an expression of opinion regarding the financial statements or an assertion that an opinion cannot be expressed. identify circumstances in which accounting principles have not been consistently observed in the current period in relation to the prior period. state whether the financial statements are presented in accordance with generally accepted auditing standards.

spot price

contract price

When preparing a statement of cash flows (indirect method), an increase in ending inventory over beginning inventory will result in an adjustment to reported net earnings because

cost of goods sold on an accrual basis is lower than on a cash basis

A very popular measure used to determine the progress toward completion under the percentage-of-completion method is the:

cost-to-cost method.

"secret reserve"

created when a capital expenditure is charged to expense

On December 31, 2013, Winston Inc. has determined that it is more likely than not that $240,000 of a $600,000 deferred tax asset will not be realized. The journal entry to record this reduction in asset value will include a

credit to Allowance to Reduce Deferred Tax Asset to Expected Realizable Value of $240,000. A company reduces a deferred tax asset by a valuation account if it is more likely than not that it will not realize some portion or all of the deferred asset.

Most common type of preferred stock

cumulative preferred stock

A deferred income tax asset or liability is usually classified as a

current or noncurrent based on the classification of the related asset (liability) for financial reporting purposes.

The Lease Liability account should be disclosed as

current portions in current liabilities and the remainder in noncurrent liabilities.

Changes in estimates

currently and prospectively

How do you record the difference b/w the cash price of convertible debt and the carrying amount by the issuer

currently in NI, but not as an extraordinary item

During the fiscal year that just ended, Okada Corporation had an unrealized holding gain of $125,000 on one of its debt investments. If Okada classifed this investment as a trading investment, then it should

deduct the amount of the gain from its net income when computing its net cash flow from operating activities

increase in inventory balance indirect method

deduction from NI operating activities

Product warranty liabilities

deferred tax asset; temporary differences normally classified as expenses or losses and are deductible after recognized in financial income

With regard to deferred taxes, use of the installment sales method for tax purposes would typically result in a:

deferred tax liability

The Revaluation Surplus of IFRS is

different than U.S. GAAP in that it allows the increase in valuation.

Taxable income of a corporation

differs from accounting income due to differences in interperiod allocation and permanent differences between the two methods of income determination.

At the time of conversion of convertible preferred stock to common stock, if the par value of the common shares exceeds the carrying amount of the preferred shares, the issuer must

directly reduce retained earnings for the amount of the difference.

The Billings on Construction in Process account is reported as:

either a current asset or current liability.

the division of income tax expense into current expense and deferred expense should be reported

either in the income statement or in the notes to the financial statements

To arrive at net cash provided by operating activities, it is necessary to report revenues and expenses on a cash basis. This is done by:

eliminating the effects of income statement transactions that did not result in a corresponding increase or decrease in cash.

When a bond issuer offers some form of additional consideration (a "sweetener") to induce conversion, the sweetener is accounted for as a(n)

expense

Derivatives should be reported at

fair value

"passive interest"

fair value method

A postretirement asset is computed as the excess of the

fair value of plan assets over the accumulated postretirement benefit obligation.

To qualify for special accounting for hedges treatment, the hedging transaction must be

highly effective

Station Toy Train Co., a cash basis taxpayer, prepares accrual basis financial statements. In its Year 13 balance sheet, Station's deferred income tax liabilities increased compared to Year 12. Which of the following changes during Year 13 would cause this increase in deferred income tax liabilities? i.) an increase in prepaid insurance, ii.) an increase in rent receivable, iii.) an increase in liability for warranty obligations

i.) and ii.)

Gains and losses from speculation should be recognized

immediately

% of completion

immediately recognize loss on profitable contract in current period

Sales-Type Lease

in addition to interest revenue earned over the lease term, the lessor receives a manufacturer's or dealer's profit on the sale of the asset; expenses initial direct costs in the year of incurrence

UGL on cash flow hedges are reported

in equity as a component of other comprehensive income

Deferred taxes should be presented on the balance sheet

in two amounts: one for the net current amount and one for the net noncurrent amount.

an executive pays no taxes at the time of exercise in an

incentive stock option plan

An executive pays NO taxes at the time of exercise in a(an)

incentive stock option plan.

Investing Actitivties

include (a) making and collecting loans and (b) acquiring and disposing of investments and productive long-lived assets.

Income tax expense or benefit =

income taxes payable - (change in deferred)*tax rate

The deferred tax expense is the

increase in balance of deferred tax liability minus the increase in balance of deferred tax asset.

Items that increase pension expense

interest on the liability service cost amortization of prior service cost

Changes in the projected benefit obligation that result in unexpected gains or losses are referred to as

liability gains and losses.

The MD&A section of a company's annual report is to cover the following three items:

liquidity, capital resources, and results of operations.

examples of temporary differences

long-term construction contracts, installment sales, investments under the equity method

when using indirect method, an increase in ending inventory over beg. inventory results in

lower COGS on a accrual basis than cash basis

Proceeds from the sale of debt with detachable warrants should be allocated b/w 2 securities based on what

market value of the bonds and the warrants

A net operating loss:

may be carried back 2 years or carried forward up to 20 years.

result of treasury stock transactions by a corporation

may decrease, but not increase RE

The accounting for treasury stock retirements under IFRS

may have the excess charged to paid-in capital, depending on the original transaction related to the issuance of the stock.

The balance of the Pension Asset/Liability column in the pension worksheet should equal the

net balance in the memo record.

The return on common stock equity is calculated by dividing

net income less preferred dividends by average common stockholders' equity.

The calculation of the times interest earned involves dividing

net income plus income taxes and interest expense by annual interest expense.

APIC is not affected by the issuance of

no-par stock

Additional paid-in capital is not affected by the issuance of:

no-par stock.

changes in estimate

opening balances are NOT adjusted for the change; financial statements of prior periods are NOT restated; these changes are viewed as normal recurring corrections and adjustments

if a pant asset is sold for cash and a loss results which sections under indirect

operating and investing

Cash dividends are paid on the basis of the number of shares

outstanding

a deferred tax liability represents

payable in future years as a result of taxable temporary differences

The pension asset/liability is the difference between the:

projected benefit obligation and the fair value of plan assets.

Intrest on the PBO reflects what?

rates at which pension benefits could be effectively settled

When goods or services are exchanged for cash or claims to cash (receivables), revenues are

realized

The primary difference between a direct-financing lease and a sales-type lease is the

recognition of the manufacturer's or dealer's profit at (or loss) the inception of the lease.

what feature makes preferred stock like debt

redeemable

A valuation account is used to

reduce a deferred tax asset

The last procedure (step) in the computation of deferred income taxes is to:

reduce deferred tax assets by a valuation allowance if necessary.

All dividends except stock dividends

reduce total STE

management approach

reflects how management segments the company for making operating decisions

The interest on the projected benefit obligation component of pension expense

reflects the rates at which pension benefits could be effectively settled.

When a change in the tax rate is enacted into law, its effect on existing deferred income tax accounts should be

reported as an adjustment to income tax expense in the period of change.

When a change in the tax rate is enacted into law, its effect on existing deferred income tax accounts should be:

reported as an adjustment to tax expense in the period of change.

deferred tax asset

represents the increase in taxes refundable (or saved) in future years as a result of deductible temporary differences existing at the end of the current year

A change to LIFO inventory valuation from any other acceptable inventory valuation method:

requires no restatement of prior years' income.

noncontributory plan

retirement plan funded entirely by contributions from the employer

A company estimates the fair value of SARs, using an option-pricing model, for

share-based liability awards.

In a lease that is appropriately recorded as a direct-financing lease by the lessor, interest income

should be recognized over the period of the lease using the effective interest method.

SARs equity awards

stock options

direct method

takes cash flow from operating activities and presents a condensed version of cash receipts and cash disbursements

Income tax payable is based (computed) on:

taxable income

income taxes payable is computed on

taxable income

A major distinction between temporary and permanent differences is:

temporary differences reverse themselves in subsequent accounting periods,whereas permanent differences do not reverse.

In a statement of cash flows, the cash flows from investing activities section should report:

the assignment of accounts receivable.

An entry is not made on

the date of record

A permanent difference that is recognized for tax purposes but NOT for financial reporting purposes

the deduction fro dividends rec'd from US corporations

When the additional liability exceeds the unrecognized prior service cost:

the excess is debited to a contra equity account.

Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if

the future tax rates have been enacted into law.

In computing the present value of the payments under the present value test, the lessee must use a discount rate. Normally, use of the lessee's incremental borrowing rate is appropriate unless:

the lessee knows the implicit rate of the lessor. To determine whether the present value of the payments equals or exceeds 90%of the fair value of the leased asset, a lessee should compute the present value of the lease payments using the implicit interest rate. This rate is defined as the discount rate that, at commencement of the lease, causes the aggregate present value of the lease payments and unguaranteed residual value to be equal to the fair value of the leased asset. If it is impracticable to determine the implicit rate,then the incremental borrowing rate can be used.

If a lease arrangement meets a sales-type lease, but payments by the lessee are determined as not probable, then

the lessor does not record a receivable and does not derecognize the leased asset, but instead records any receipt of lease payments as a deposit liability.

During the fiscal year that just ended, a firm purchased 50k of equipment in exchange for common stock. According to US GAAP

the noncash transaction should not be incorporated in the firm's statement of cash flows, but instead may be summarized in a separate schedule at the bottom of the statement or appear in a separate supplementary schedule to the financials

Legal capital for a corporation is defined as

the par value of all capital stock issued.

if preferred stock stated dividend is listed as a specific $ amount you can assume

the preferred stock has NO PAR VALUE

The total charges to operations over the lease term are

the same for a capital lease as an operating lease.

Proceeds from an issue of debt securities having stock warrants should not be allocated between debt and equity features when

the warrants issued with the debt securities are nondetachable.

The installment-sales method of recognizing profit for accounting purposes is acceptable if

there is no reasonable basis of estimating the uncollectability of the sales price.

The conversion of preferred stock into common requires that any excess of the par value of the common shares issued over the carrying amount of the preferred being converted should be

treated as a direct reduction of retained earnings

when disclosing lease information in the notes to the financial statements, which of the following should only be reported by the LessOR

unearned revenues

Stock dividend

used if management wishes to "capitalize" part of the earnings

Affirmative Judgement IFRS

used in regard to recognition of deferred tax assets; recognize an asset up to the amount that is probable to be realized

corridor approach

used to amortize gains and losses in accum OCI

payment of a stock dividend

would be disclosed under significant noncash transactions

Accounting changes are often made and the monetary impact is reflected in the financial statements of a company even though, in theory, this may be a violation of the accounting concept of

consistency.

taxable income of a corporation

differs from accounting income due to differences in interperiod allocation and permanent differences between the two methods of income determination.

Dilutive convertible securities must be used in the computation of

diluted earnings per share only.

Property dividends and dividends in kind

dividends payable in assets of the corporation other than cash

net cash flow from operating activities is determined by eliminating

noncash expenses and noncash revenues

For stock appreciation rights, share appreciation is the excess of the market price of the stock at the date ______ over a pre-established price.

of exercise

Why do companies use cash flow hedges

to hedge exposure to cash flow risk from the variability in cash

Accurately describes treasury stock

treasury stock is included in shares

Par Value Method (Treasury Stock)

used for the retirement of OS Stock

Material loss on a year-end AR because of a customer's bankruptcy

Adjust the financial statements

Settlement of prior year's litigation

Adjust the financial statements

The date on which to measure the compensation element in a stock option granted to a corporate employee ordinarily is the date on which the employee

is granted the option.

GAAP vs. IFRS Recovery of impairment

is permitted by IFRS for held-for-collection securities but prohibited by US GAAP for held-to-maturity securities.

Under IFRS, the statement of stockholders equity

is required

Lessees prefer to account for their leases as operating lease because:

it decreases the amount of liability reported.

With regard to uncertain tax positions, the FASB requires that companies recognize a tax benefit when

it is more likely than not that the tax position will be sustained upon audit.

If the residual value of a leased asset is guaranteed by a third party

it is treated by the lessee as no residual value.

An essential element of a lease conveyance is that the:

lessor conveys less than his or her total interest in the property. A lease is a contractual agreement conveying the rights to use property from one party to another. A lease does not by definition transfer ownership. Such arrangements can be written into a lease agreement, but the transfer of ownership is not part of all lease agreements.

Some changes in working capital, although they affect cash, do not affect net income.

TRUE

The FASB has adopted the approach that all long-term leases should be capitalized.

TRUE

The cash received from the sale of property, plant, and equipment at a gain, although reported in the income statement, is classified as an investing activity.

TRUE

If an employee fails to satisfy a service requirement, the company should

adjust compensation expense CR in current period and DR Paid-in Capital Stock Options

Settlement of federal tax case at the a cost considerably in excess o the amount expected at year-end.

Adjust the financial statements to correct for the accrual we booked at year end.

When $5,000,000 in convertible bonds are issued at par with $800,000 in value of the equity option embedded in the bond, the IFRS journal entry will include a debit of

$800,000 to Bonds Payable and a credit to Paid-in Capital — Convertible Bonds.

indirect method

'aka' the reconciliation method

When preparing a statement of cash flows (indirect method), which of the following is not an adjustment to reconcile net income to net cash provided by operating activities

(a) a change in income taxes payable (b) a change in interest payable © a change in dividends payable

examples of counterbalancing errors

-failure to record accrued wages -understatement of unearned revenue -failure to record prepaid expenses

reasons certain companies prefer certain accounting methods

-political costs -smooth earnings -bonus payments

APIC

1,400

Methods used to avoid leased asset capitalization

>set the lease term at something less than 75% of the estimated useful life of the property >lessee uses a higher interest rate than that used by lessor >use a third party to guarantee the asset's residual value

Liquidating dividend

A dividend which is a return to stockholders of a portion of their original investments; reduces corporate paid-in capital

All of the following are examples of temporary differences that result in taxable amounts in future years except:

A.) subscriptions received in advance

Gains or losses can represent changes in

APBO or the fair value of pension plan assets.

Which of the following would not be an opportunity for fraudulent financial reporting?

Accounting estimates, requiring significant subjective judgment. Unusual or complex transactions. Weak or nonexistent internal accounting controls. All of the answer choices are correct.

In computing deferred income taxes for which graduated tax rates are a significant factor, companies are required to use the:

Average Tax Rates

When recording the conversion of bonds to common stock, there will always be a debit to ________ and a credit to ________.

Bonds Payable; Common Stock

There are different views on the capitalization of leases. Which of the following has been adopted by the FASB?

Capitalize all long-term leases.

Whenever it is impossible to determine whether a change in principle or a change in estimate has occurred, the change should be considered a:

Change in estimate

The residual interest in a corporation belongs to the

Common Stockholders

Lump-Sum Sales of Stock

Fair Value

How should the difference between the cash acquisition price of retired convertible debt and the carrying amount of the debt be recorded by the issuer?

It should be recorded currently income, but not as an extraordinary item.

The unexpected gains or losses that result from changes in the projected benefit obligation are called

LIABILITY gains and losses

Which of the following is not one of the commonly discussed advantages of leasing for the lessee?

Leasing permits 100% financing at fixed rates. Leasing permits changes in equipment more easily thus reducing the risk of obsolescence. Leasing improves financial ratios by increasing assets without a corresponding increase in debt. Lease agreements may contain less restrictive provisions than other debt agreements. A lease agreement does not improve financial ratios. For the lessee, all long-term leases have an asset recorded along with a corresponding liability.

Which of the following best describes a possible result of treasury stock transactions by a corporation?

May decrease but not increase retained earnings.

A single ratio by itself is generally not useful.

TRUE

The proceeds from the sale of debt with detachable stock warrants should be allocated between the two securities based on the:

aggregate fair market value of the bonds and the warrants.

Which of the following disclosures of postretirement benefits would be required by professional pronouncements?

The postreitrement expense for the period, the assumptions and rates used in computing the EPBO and APBO, A schedule showing changes in postretirement benefits and plan assets during year

Which is the most common form of auditor's report?

Unqualified Opinion

The accounting for treasury stock retirements under IFRS requires

a charge for the excess to paid-in capital, depending on the original transaction related to the issuance of the stock.

Total STE means

a claim against a portion of the total assets of a company

Compensation expense resulting from a compensatory stock option plan is generally

allocated to the periods benefited by the employee's required service.

Recovery of impairment on Held-to-maturity

allowed by IFRS, prohibited by GAAP

non-counterbalancing errors

an error that takes longer than 2 years to correct itself

Net Operating Loss

carried back 2 years and carried forward up to 20 years

SARs liability awards

cash

The payout ratio is calculated by dividing

cash dividends by net income less preferred dividends.

A change that occurs as the result of new information or as additional experience is acquired is a:

change in accounting estimate.

inventory errors are

counterbalancing errors

A company often issues preferred stock instead of debt because of a

high-debt to equity ratio

Income tax expense is based on

pretax financial income

income tax expense is based on

pretax income

True no-par stock

should be carried in the accounts at issue price without any additional paid-in capital or discount reported. But some states require that no-par stock have a stated value. The stated value is a minimum value below which a company cannot issue it. Thus, instead of being no-par stock, such stated-value stock becomes, in effect, stock with a very low par value.

Liquidating preferences

should be disclosed in the equity section of the balance sheet rather than in the notes