1) Accounting records all executory promises.
Answer:
2) Discuss the various laws and contracts that govern the rights and
obligations of a shareholder.
Answer:
3) Accrual accounting requires frequent, ongoing changes in estimates.
Answer:
4) Describe the disaggregation of the rate of return on common
shareholders equity.
Answer:
5) Compare the features of stock options and stock rights. What are
stock warrants?
Answer:
6) Market-to-book-value ratios tend to be large for firms that make
substantial expenditures on internally developed assets, including
research and development, advertising, and employee development.
Answer:
7) Explain the accounting for employee stock options.
Answer:
8) Discuss the accounts receivable turnover ratio.
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9) Under current accounting guidance, the employer consolidates the
assets and liabilities of the firms pension plan with its own
assets and liabilities.
Answer:
10) Describe the effects of transactions involving investments on the
statement of cash flows.
Answer:
11) The currentnoncurrent distinction refers to whether a firm will
convert an asset to cash, or consume it, or sell it within one
operating cycle and whether a firm will pay or otherwise settle a
liability within one operating cycle.
Answer:
12) Describe the U.S. GAAP requirement in accounting for joint venture
investments.,
Answer:
13) The pension expense for a particular period is the amount of the
cash contribution for defined contribution pension plans.
Answer:
14) Although the guidance in U.S. GAAP and IFRS states a preference
that companies present cash flows from operations using the
indirect method, most companies present cash flows from operations
as a reconciliation of net income to operating cash flow (the
direct method).
Answer:
15) The allowance method for uncollectibles is used by a firm
A.when it knows that at the time of sale, it will experience some
reduction in future cash flows
B.when the firm can estimate with reasonable precision the amount
of reduction in future cash flows at the time of sale
C.to reduce reported earnings in the period of sale to the amount
of the expected net cash collections
D.all of the above
E.none of the above
Answer:
16) Which of the following items appears in the balance sheet at
amortized acquisition cost?
A.debt securities held to maturity
B.trading securities
C.available-for-sale securities
D.derivatives
E.securities available for liquidation
Answer:
17) Which of the following is/are not true?
A.Firms may issue capital stock (preferred or common) for cash or
for noncash assets
B.Firms usually issue shares for cash at the time of their initial
incorporation and at periodic intervals as they need additional
shareholder funds
C.Firms sometimes issue shares to employees as compensation
D.The issue price for preferred stock usually approximates its par
value
E.none of the above
Answer:
18) The financial statements contain information for analyzing the
collectibility of accounts receivable and the adequacy of the
expense for uncollectible accounts. Typical ratios used for this
analysis include the
A.accounts receivable turnover ratio, only
B.days receivables outstanding, only
C.write-off percentage, only
D.accounts receivable turnover ratio, days receivables outstanding,
and write-off percentage
E.accounts receivable turnover ratio and days receivables
outstanding, only
Answer:
19) U.S. GAAP defines the primary measurement of the pension liability
of the pension plan as the _____the _____ of the amount the pension
plan expects to pay to employees during retirement based on
accumulated service but using the level of salary expected to serve
as a basis for computing pension benefits.
A.projected benefit obligation; future value
B.projected benefit obligation; present value
C.actual benefit obligation; present value
D.actual benefit obligation; future value
E.actual benefit obligation; expected value
Answer:
20) A growing firm that delays payments at the end of each period
reports larger cash flow from operations each period than if it had
not delayed making the cash payments at the end of each period.
Which of the following is true?
A.The firm is, in effect, obtaining short-term financing from its
suppliers
B.Absent contracts or other agreements that preclude delayed
payments, this business practice is legal
C.Sufficiently delayed payments might harm a firms reputation
D.Sufficiently delayed payments might harm a firms credit
rating
E.All of the above are true
Answer:
21) During September, Genesis sold 100 radios for $50 each. Each radio
cost Genesis $30 to purchase, and carried a two-year warranty. If
5% typically need to be replaced over the warranty period and one
is actually replaced during September, for what amount in September
would Genesis debit Product Warranty Expense?
A.$50
B.$150
C.$30
D.$120
E.$52.50
Answer:
22) Classifying financial statement accounts. The balance sheet or
income statement classifies various items in one of the following
ways:
CACurrent assets
NANoncurrent assets
CLCurrent liabilities
NLNoncurrent liabilities
CCContributed capital
RERetained earnings
NIIncome statement item (revenue or expense)
XItem generally does not appear on a balance sheet or an income
statement
Using the abbreviations in the previous list, indicate the
classification of each of the following items under U.S. GAAP and
IFRS. If the classifications differ between U.S. GAAP and IFRS,
indicate what that difference would be.
a. Interest revenue.
b. Factory.
c. Treasury shares repurchased by a corporation.
d. Research and development expenditures.
e. Automobiles used by sales staff.
f. Cash on hand.
g. Promise to a vendor to buy inventory from it next period.
h. Commissions earned by sales staff.
i. Supplies inventory.
j. Note payable, due in six months.
k. Increase in fair value of land held.
l. Income taxes owed to state or city government.
m. Note payable, due in ten years.
n. The portion of the note payable in part n that is due next
year.
o. Dividends declared.
Answer:
23) Regarding employee stock options, which of the following is/are
true?
A.Firms compute a fair-value-based measure of employee stock
options on the date of the grant using an option-pricing model that
incorporates information about the current market price, the
exercise price, the expected time between grant and exercise, the
expected volatility of the stock, the expected dividends, and the
risk-free interest rate
B.Total compensation cost is the number of options the firm expects
to vest times the value per option
C.Firms amortize total compensation cost over the requisite service
period, which is the expected period of benefit
D.The requisite service period is usually the period between the
grant date and the vesting date
E.all of the above
Answer:
24) Rate of return on common shareholders’ equity (ROCE)
A.measures a firm’s performance in using and financing assets to
generate earnings and explicitly considers financing costs
B.a measure of profitability that incorporates the results of
operating, investing, and financing activities
C.equals net income (less dividends on preferred stock, if any)
divided by average common shareholders’ equity
D.all of the above
E.none of the above
Answer:
25) The concept of _____ includes both the power, or capacity, to
direct the strategic, operating, investing, and financing
activities of another entity, and the ability to benefit from
increases in the value of the other entity and to incur losses from
decreases in value.
A.ownership
B.management
C.significant influence
D.control
E.state governance
Answer:
26) Conrad Company reports the following:
| Total Assets | $800 |
| Contributed Capital | $300 |
| Total Revenues | $600 |
| Beginning Retained Earnings | $200 |
| Total Expenses | $700 |
| Dividends | $100 |
What are Total liabilities?
A.$600
B.$500
C.$400
D.$300
Answer:
27) A stock split that is accomplished by a change in par value that is
not proportional to the new number of shares or if the firm does
not change the par value, the firm
A.does not require a journal entry
B.decreases Additional Paid-In Capital or Retained Earnings
C.increases Additional Paid-In Capital or Retained Earnings
D.decreases Cash or Retained Earnings
E.increases Cash or Retained Earnings
Answer:
28) When using the effective interest method the amount of interest
expense each period equals the
A.current market interest rate times the carrying value of the
financial instrument at the date of issuance
B.current market interest rate times the carrying value of the
financial instrument at the beginning of each period
C.historical market interest rate times the carrying value of the
financial instrument at the date of issuance
D.historical market interest rate times the carrying value of the
financial instrument at the beginning of each period
E.fair market interest rate times the carrying value of the
financial instrument at the date of issuance
Answer:
29) A firm that can exert significant influence over another entity
accounts for its intercorporate investment by
A.using the equity method
B.recognizes its share of the net income or net loss of the
investee, after eliminating any intercompany income items, and
increases (in the case of net income) or decreases (in the case of
net loss) its investment account in an equal amount
C.comparing the acquisition cost of the investment to determine
whether it exceeds the investors interest in the net assets of the
investee at the time of the acquisition, the investor must decide
if the excess relates to assets or liabilities of the investee with
a limited life
D.decreasing the investment account for dividends received
E.all of the above
Answer:
30) When creditors provide funds to a firm, which of the following
is/are true?
A.The firm must repay, usually with interest, in specific amounts
at specific dates
B.Long-term creditors require repayment from the borrower over a
period of
time that exceeds one year
C.One common form of long-term financing is bonds
D.Suppliers of raw materials or merchandise that do not require
payment for 30 days provide short-term funds
E.All of the above are true
Answer:
31) Firms sometimes issue bonds or preferred stock with stock warrants.
Which of the following is/are not true?
A.The stock warrant permits the holder to exchange the warrant and
a specified amount of cash for shares of the firms common stock
B.The preferred shareholders benefit if the market price of the
common stock increases
C.Firms may issue preferred stock with stock warrants attached
D.Attaching a stock warrant permits the firm to issue preferred
stock with a lower dividend rate
E.none of the above
Answer:
32) Concerning treasury shares, which of the following is/are true?
A.Firms recognize no gain or loss from purchasing their own shares
or reissuing previously purchased shares.
B.Differences between the purchase and reissue price are not
earnings transactions but affect contributed capital accounts
C.Firms account for the purchase of treasury shares using either
the cost method or the par value method or the constructive
retirement method
D.The methods firms use to account for the purchase of treasury
shares differ in terms of the shareholders equity accounts
affected, but all result in an equal reduction in total
shareholders equity when firms purchase their own shares
E.all of the above
Answer:
33) The recording of amortization of intangibles generally results in
a
A.credit directly to the asset account that is being amortized
B.debit directly to the asset account that is being amortized
C.credit a contra-asset account called Accumulated Amortization
D.debit a contra-asset account called Accumulated Amortization
E.none of the above
Answer:
34) U.S. GAAP and IFRS provide criteria for distinguishing operating
leases from capital leases. Which of the following is true?
A.Firms cannot currently apply the fair value option to capital
leases
B.When the lessor enjoys the benefits and bears the risk, the lease
is an operating lease
C.When the lessee enjoys the benefits and bears the risk, the lease
is a capital lease
D.IFRS provides more general criteria for identifying the entity
enjoying the rewards and incurring the risk
E.all of the above
Answer:
35) The U.S. government will pay Bringle $2,500,000 each six months,
equal to 2.5% of the $100 million face amount of the treasury bonds
(5% annual coupon rate, paid in two installments each year), and
will repay the $100 million at the end of five years. At the time
Bringle purchases the bonds, the market prices these bonds to yield
Bringle 6% annually (3% each six months). The bonds are classified
as held to maturity. Bringle will record the following entry.
A.Marketable Securities…………………………95,734,898
Cash………………………………………………………………..95,734,898
B.Marketable Securities……………………….100,000,000
Cash………………………………………………………………100,000,000
C.Cash………………………………………………..
95,734,898
Marketable
Securities………………………………………..95,734,898
D.Cash…………………………………………….
100,000,000
Marketable
Securities………………………………………..95,734,898
E.Cash……………………………………………….105,907,059
Marketable Securities
……………………………………..105,907,059
Answer:
36) The par value of common stock represents the
A.liquidation value of the stock
B.book value of the stock
C.legal nominal value assigned to the stock
D.amount received by the corporation when the stock was originally
issued
E.None of these choices is correct
Answer:
37) The typical steps in financial statement analysis and valuation
include(s):
A.value the firm
B.identify the industry economic characteristics and firms
strategy
C.calculate and interpret profitability and risk ratios
D.prepare pro forma, or projected financial statements
E.all of the above
Answer:
38) Which of the following is/are not true?
A.An employer must recognize changes in the funded status of a
defined benefit retirement plan on its balance sheet each
period
B.U.S. GAAP and IFRS require the employer to recognize changes in
the funded status of a defined benefit retirement plan immediately
in net income
C.Changes in the net funded status of a defined benefit retirement
plan because investment performance differs from expectations, or
because of changes in actuarial assumptions, or in the retirement
benefit formula, initially affect other comprehensive income
D.Firms amortize the amounts in Other Comprehensive Income over the
expected period of benefit as an adjustment to retirement plan
cost
E.all of the above
Answer:
39) When a firm has accumulated losses, rather than profits, the
Retained Earnings account is typically called:
A.Negative cash balance
B.Ordinary Loss
C.Accumulated Excess
D.Accumulated Deficit
E.Insolvency
Answer:
40) Queen Corporation borrowed $750,000 during Year 3 from its bank
under a long-term borrowing arrangement. The statement of cash
flows classifies the transaction as a(n)
A.operating activity
B.investing activity
C.financing activity
D.exchange transaction
E.lending activity
Answer:
41) On January 1, Year 6, Pearson Corporation issued $1,000,000 face
value, 20-year bonds. The bonds carry coupon interest of 6 percent
per year, payable semiannually on June 30 and December 31 . The
bonds were initially priced on the market to yield 8 percent,
compounded semiannually (for an effective annualized yield greater
than 8 percent).
Required:
a. Compute the issue price of these bonds on January 1, Year 6.
b. Compute the amount of interest expense on these bonds for Year
6, assuming that the firm uses the effective-interest method of
amortizing bond premium or discount.
c. Assume for this part that the firm recorded interest expense in
Part b. in an amount equal to interest paid for the year. That is,
it failed to record amortization of bond premium or discount.
Indicate the effect (direction and amount) of this omission on the
line items in the statement of cash flows using “O/S” (overstated),
“U/S” (understated), or “No” (no effect). Ignore income taxes.
Direction Amount
1> Net Income
2> Adjustments that are added to net income
3> Adjustments that are subtracted from net income
4> Cash Flow from Operations
Answer:
42) IFRS defines _____ as a current exchange value, which can mean
either a current entry price or a current exit price.
A.Current Replacement Cost
B.Net Realizable Value
C.Fair Value
D.Present Value of Future Net Cash Flows
E.Acquisition cost
Answer:
43) The capital lease method is appropriate when the lessee enjoys most
of the _____ and bears most of the _____ of ownership.
A.risks; rewards
B.rewards; risks
C.cash receipts; cash disbursements
D.cash disbursements; cash receipts
E.cash receipts; risks
Answer:
44) Dominick Inc.
The accounting records of Dominick Inc. indicate that the firm sold
for $1,800 during Year 2 a machine originally costing $6,000, with
accumulated depreciation of $4,600. The journal entry made to
record this sale was as follows:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .1,800
Accumulated Depreciation. . . . . . . . . . . . . . . . . . . . . .
.4,600
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . 6,000
Gain on Disposal of Equipment. . . . . . . . . . . . . . . . . . .
. . . . . . . . 400
(Use the information about Dominick Inc. to answer this question.)
In preparing the statement of cash flows using the T-account
worksheet, the accountant
A.subtracts the $400 gain from net income in computing cash flow
investment activities
B.adds the $400 gain to net income in computing cash flow from
investment activities
C.subtracts the $400 gain from net income in computing cash flow
from operations
D.adds the $400 gain to net income in computing cash flow from
operations
E.adds the $400 gain to retained earnings in computing cash flow
investment activities
Answer:
45) Skyway Company, a U.S. airplane manufacturer, reported a balance of
$8,100 million in Inventory at the beginning of 2013 and $9,600
million at the end of 2013. Its income statement reported Cost of
Products Sold of $45,400 million for 2013. Compute the cost of
inventory either purchased or manufactured during 2013. (Skyway
Company applies U.S. GAAP, and reports its results in millions of
U.S. dollars.)
A.$49,500 million
B.$39,900 million
C.$46,900 million
D.$39,900 million
E.none of the above
Answer:
46) If firms expect to receive cash more than one year after the time
of recognizing revenue, they measure revenues at the
A.future value of the amount of cash they expect to receive
B.present value of the amount of cash they expect to receive
C.fair value
D.aggregate total of the amount of cash they expect to receive
E.net realizable value
Answer:
47) Although the guidance in U.S. GAAP and IFRS states a preference
that companies present cash flows from operations using the _____,
most companies present cash flows from operations as _____.
A.a reconciliation of net income to operating cash flow (the direct
method); direct method
B.direct method; a reconciliation of net income to operating cash
flow (the indirect method)
C.cash method; accrual method
D.accrual method; cash method
E.none of the above
Answer:
48) Which of the following is/are true?
A.A derivative is a financial instrument whose value changes in
response to changes in an underlying observable variable, such as a
stock price, an interest rate, a currency exchange rate, or a
commodity price
B.Unlike equity securities, which have no definite settlement date,
firms settle a derivative at a date that the terms of the
instrument specify
C.A derivative requires an investment that is small, relative to
the investment in a contract that is similarly exposed to changes
in market factors, or requires no investment at all
D.Firms use derivative instruments to hedge the risks that arise
from changes in interest rates, foreign exchange rates, and
commodity prices
E.all of the above
Answer: