1) A major factor underlying the rise of IFRS is that companies needing to seek global
sources of capital are at a disadvantage when they only produce financial statements
based on the commercial and tax law approach.
2) A lender is protected against anticipated credit risks by the loan’s covenant provisions
as interest rates are fixed by the Federal Reserve Bank.
3) A ship building company is likely to recognize revenue at the completion of
production.
4) Under IFRS, debt issue costs are treated as an expense of the period when the debt is
issued.
5) Firms are required to disclose separately total expensed R&D costs; thus, analysts
can use these disclosures to reconstruct what asset and amortization amounts would be
if GAAP allowed R&D to be capitalized. Required disclosures of marketing and
advertising expenditures permit a similar adjustment approach for trademarks and
brands.
6) Lenders compare their cash flow projections for a company to the firm’s future
dividend commitment as stated in the firm’s dividend policy.
7) Foreign currency nonmonetary assets and liabilities for non-free-standing
subsidiaries are translated using the current exchange rate at the balance sheet date.
8) Financial accounting numbers can be used to define contract terms and monitor
compliance with contract terms.
9) The intent of covenants in debt agreements is to discourage lender fraud.
10) Analysts use financial statement information to assess the economic activities of a
company and its condition.
11) For long-term credit sales transactions utilizing notes receivable, interest income is
recorded each period over the note’s term to maturity using the prevailing borrowing
rate.
12) An increase in cash flows from operating activities occurs when accounts payable is
intentionally understated.
13) Financial executives overwhelmingly believe that meeting earnings benchmarks
helps maintain or increase the firm’s stock price.
14) Discount on bonds payable (bond discount) is a liability valuation account.
15) FIFO matches current costs with current revenues.