164. Which of the following is/are true?
165. Which of the following is/are true regarding the classification of redeemable preferred shares on the
balance sheet?
166. Which of the following is/are not true regarding the classification of redeemable preferred shares on the
balance sheet?
167. Which of the following is/are not true regarding the classification of redeemable preferred shares on the
balance sheet?
168. Which of the following is/are not true regarding the classification of redeemable preferred shares on the
balance sheet?
169. Which of the following is/are not true regarding the classification of redeemable preferred shares on the
balance sheet?
170. Regarding employee stock options, which of the following is/are true?
171. Regarding employee stock options, which of the following is/are not true?
172. Regarding employee stock options, which of the following is/are not true?
173. Regarding employee stock options, which of the following is/are true?
174. Regarding employee stock options, which of the following is/are true?
175. Which of the following is/are true?
176. Which of the following is/are not true?
177. Which of the following is/are not true?
178. Concerning treasury shares, which of the following is/are true?
179. Which of the following is/are true about accounting for errors and changes in accounting principles and
changes in accounting estimates?
180. For each of the following generally accepted accounting principles, identify an alternative acceptable
accounting principle.
a.
Installment method
b.
Operating lease
c.
Straight-line, depreciation
d.
Last-in, first-out
a.
Cost recovery first method
b.
Capital lease
c
declining-balance or units-of-production
d.
FIFO, weighted average, specific identification
181. (U.S. GAAP) A and X are exactly alike except for their choice of accounting methods. A uses
straight-line depreciation while X uses 200 percent declining balance depreciation. A uses FIFO and X uses
LIFO inventory methods.
a.
Both corporations issue 5,000 shares of $1 par value stock on January 1, for $15 per share.
b.
Both A and X acquire equipment on January 1, for $40,000 cash. The equipment has a 5-year life and a
$5,000 salvage value.
c.
Both A and X purchase inventory as follows:
Date
# Units
Unit Price
1/1
100
$100
7/1
150
110
11/1
110
115
Total
360
d.
Both A and X sell 200 units of inventory at $250 each. No credit sales are made.
e.
Other expenses for the year, excluding depreciation, total $10,000.
Required:
Identify and give the balance of any balance sheet and income statement accounts that have different balances at
year end for companies A and X based on the above information. Ignore any tax effects.
A
X
DR(CR)
DR(CR)
(7,000)
(16,000)
18,150
16,600
7,000
16,000
21,000
22,550
12,000
1,450
182. Using U.S. GAAP, a merchandising firm is trying to decide between using LIFO or FIFO for an inventory
cost flow assumption. The firm had inventory purchases and sales over 3 years as follows:
Units
Unit Price
Beginning inventory
0
–
Year 1 Purchases
1/1
100
$0.90
5/1
150
0.85
11/1
120
0.95
Year 1 Withdrawals
(140)
Year 2 Purchases
2/1
120
0.95
6/1
110
0.96
9/1
100
0.98
Year 2 Withdrawals
(300)
Year 3 Purchases
1/1
150
0.90
6/1
100
0.95
10/1
120
0.95
Year 3 Withdrawals
(340)
The firm estimates that using LIFO will cost the firm $50 for additional clerical work. The tax rate for all years
is 30%. Net income before cost of goods sold for each year is as follows:
Year 1 – $1,000
Year 2 – $2,000
Year 3 – $2,500
Required:
a.
What is net income after taxes under each method for years 1 through 3?
b.
Which method will result in a higher after tax cash flow for each year?
Net Income after Taxes
Greater After-Tax
Year
FIFO
LIFO
Cash Flow
1
$ 613.20
$ 573.30
FIFO
2
1,208.20
1,162.63
FIFO
3
1,523.83
1,493.10
FIFO
183. For financial reporting purposes, Structural Builders uses the completed contract method of accounting for
long-term contracts. For tax purposes, Structural Builders uses the percentage-of-completion or the installment
method of accounting for the same contract. The contract is completed in Year 3. The terms of the contract, and
Structural Builders’ estimate of costs to be incurred are as follows:
Cash Receipts
Cost Incurred
Year 1
$1,000,000
$1,500,000
Year 2
2,000,000
1,500,000
Year 3
3,000,000
1,500,000
Total
$6,000,000
$4,500,000
Required:
What amount of deferred tax asset/liability will be reported by Structural Builders each year if:
a.
The percentage-of-completion method is used for tax reporting?
b.
The installment method is used for tax reporting? Assume the tax rate is 35%.
Current Year Deferred Taxes
Year
% Completion
Installment
1
$175,000
$ 87,500
2
175,000
175,000
3
(350,000)
(262,500)
184. 1. Identifying accounting principles. Indicate the accounting principle or method described in each of the
following statements. Explain your reasoning.
a. This inventory cost-flow assumption results in reporting the largest net income during periods of rising
acquisition costs and nondecreasing inventory levels.
fluctuation in earnings over several periods.
j. When a firm identifies specific customers’ accounts as uncollectible and writes them off, this method of
accounting results in no change in working capital.
k. The accounting for this type of hedging instrument designated as a hedge affects net
showing an amount for rent expense on the income statement.
(Identifying accounting principles.)
h.Market value method.
i.Percentage-of-completion method.
j.Allowance method.
k. Fair value hedge.
185. Identifying accounting principles.
Indicate the accounting principle or procedure apparently used to record each of the following independent
transactions. Also, describe the transaction or event recorded in each case.
e. Rent Expense for Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .X
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in Affiliated Company. . . . . . . . . . . . . . . . . . . . . . . . . . . X
Equity in Earnings of Affiliated Company . . . . . . . . . . . . . . . . X
k. Interest Rate Swap Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . X
Gain on Remeasurement of Swap Contract
(Income Statement) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . X
(Identifying generally accepted accounting principles.)
a. Market value method of accounting for either marketable securities
or long-term investments in securities classified as available for sale.
Payment of rent for rental services received this period.
f.Equity method of accounting for long-term investments.
Accrual of investor’s share of investee’s earnings.
g.Allowance method of accounting for uncollectible accounts.
Write off of an uncollectible account.
h.Lower-of-cost-or–market valuation basis for inventories. In most
cases, the debit entry is made to cost of goods sold.
186. Discuss recent changes in the financial reporting environment.
Recent changes in the financial reporting environment include the following:
Change will likely continue. Any attempt to synthesize financial reporting is analogous to describing a moving
187. Describe the conceptual framework used by FASB and the IASB to guide their standard-setting decisions.
CONCEPTUAL FRAMEWORK
188. What are the financial reporting objectives?
FINANCIAL REPORTING OBJECTIVES
Financial reporting objectives speak to the purpose of financial reports and the primary users and uses of those
reports. The FASB’s conceptual framework lists the following as financial reporting objectives.1 Financial
reporting should accomplish the following:
1. Provide information useful for making rational investment and credit decisions.
These financial reporting objectives identify current and potential investors and creditors as the principal users
of financial reports and the provision of information to make investment and credit decisions as the principal
purpose of financial reports. The remaining objectives describe the need for a balance sheet, an income
statement, a statement of cash flows, notes to the financial statements, and management’s discussion of
information in the financial statements and notes. The financial reporting objectives in the IASB’s conceptual
189. What are the financial reporting objectives?
FINANCIAL REPORTING OBJECTIVES
Financial reporting objectives speak to the purpose of financial reports and the primary users and uses of those
reports. The FASB’s conceptual framework lists the following as financial reporting objectives.1 Financial
reporting should accomplish the following:
to owners.
7. Include explanations and interpretations to help users understand the financial information
provided.
190. The FASB’s and IASB’S qualitative characteristics describe the attributes that enhance the usefulness of
financing reporting information. What are they?
QUALITATIVE CHARACTERISTICS OF FINANCIAL REPORTING INFORMATION
The qualitative characteristics describe the attributes that enhance the usefulness of financing
reporting information. The FASB’s conceptual framework sets forth the following qualitative
characteristics:
1. Relevance refers to information that can make a difference in a resource allocation decision by helping users
to form predictions about the outcomes of future events and to confirm or correct prior information or
expectations. Receiving information in a timely manner
The IASB identifies understandability, relevance, reliability, and comparability as the
qualitative attributes of accounting information. Relevance, reliability, and comparability
appear as qualitative characteristics in the conceptual frameworks of both standard-setting
bodies. Understandability refers to the attribute that users of financial reports will perceive
the significance of a reported item to their decisions. Such perception involves understanding
the economic effects of a firm’s actions and the measurement and reporting of those economic effects in the
financial reports. Understandability is an implicit aspect of relevance in the qualitative characteristics set forth
in the FASB’s conceptual framework.
The joint efforts of the FASB and the IASB to set forth qualitative characteristics of
financial reporting information have led to the following tentative framework:
Fundamental Qualitative Characteristics
1. Relevance
2. Faithful representation
Enhancing Qualitative Characteristics
191. Discuss the definition, recognition, and measurement of assets.
Asset
The FASB’s conceptual framework defines an asset as a probable future economic benefit obtained or
controlled by a particular entity as a result of a past transaction or event. The IASB’s conceptual framework
defines an asset as a resource controlled by an entity as a
result of past events and from which a firm expects future economic benefits.
Like the definition of an asset, the criteria for asset recognition are similar under the two frameworks:
depends on the outcome of a future event.
The FASB and the IASB are reconsidering the definition of an asset and the criteria for
asset recognition. Their proposed definition emphasizes the present existence of an economic
resource and de-emphasizes the notions of a past exchange and the probability of future
benefits. Resources would satisfy the definition of an asset if (1) the entity can separate the