1) Extended time of completion of the project and accurate measurement of its progress
towards completion are the only attributes necessary for the appropriate utilization of
the percentage-of-completion method of revenue recognition.
2) Temporary differences that will cause taxable income to be higher than book income
in future periods give rise to deferred tax liabilities.
3) If a parent owns less than 100% of a subsidiary’s stock, the non-controlling
shareholders represent the minority interest.
4) An analyst desiring to determine the degree to which a company’s earnings have
fluctuated historically in relation to changes in economic growth would employ
cross-sectional analysis.
5) The changes in the working capital accounts are the major sources and uses of cash
flows from operating activities.
6) The goal of the FASB’s proposed changes for the Statement of Comprehensive
Income is to enhance the predictive ability and decision usefulness of accounting data
for present and potential investors and creditors.
7) Companies assigned a Moody’s “Aaa” credit rating have a 1-2% default rate.
8) LIFO can be applied on either a periodic or perpetual basis. However, using the
perpetual method defeats the purpose of LIFO.
9) Current GAAP requires companies to measure the fair value of stock options at the
grant date.
10) “Vendor allowances” should be used by the recipient to lower the carrying cost of
inventory and thus ultimately to lower cost of goods sold.
11) Using simplifying assumptions, the current stock price estimate can be expressed as
a capitalization rate (1 r) multiplied by a perpetuity equal to current earnings.
12) The fixed assets reported on a consolidated balance sheet include assets of both the
parent company and the subsidiary company.
13) Debt covenants benefit creditors because the covenants reduce default risk.
14) Suppliers monitor the financial statements of their customers to protect collection of
their accounts receivable.
15) Most companies do not disclose details of their income tax returns; therefore, the
denominator of the earnings conservatism ratio (taxable income per tax return) must be
estimated.
16) The SEC through its review of companies’ filings sometimes identifies accounting
irregularities that require correction.
17) Under the sales revenue approach to estimating uncollectible accounts receivable a
percentage of gross uncollectible accounts receivable is determined to establish the bad
debts expense.
18) In a pooling of interests, both companies are assumed to combine their resources
with neither having a controlling interest over the other.
19) Intangible assets are long-lived assets that do not have physical substance.
20) A simplified version of the discounted free cash flow valuation model assumes a
zero-growth perpetuity for future cash flows. This assumption is best applied to growth
companies with stable cash flow patterns.