1) Securitizations have always been carefully designed to enable the transferor to
consolidate the special purpose entity.
2) Predicting loan default and bankruptcy are relatively easy tasks if financial ratios are
carefully analyzed.
3) GAAP requires the cost flow assumption to correspond to the actual physical flow of
inventory.
4) Inventory shipped on consignment is owned by the consignee.
5) The “if-converted” method for computing earnings per share dilution understates
diluted earnings per share when a company’s share price is substantially below the
conversion price of the debt.
6) SAB 104, “Revenue Recognition,” was not meant to change GAAP, but rather to
close some loopholes and eliminate gray areas in how GAAP was being applied in
practice.
7) The anticipated life span of the employees after retirement must be taken into
consideration in determination of pension expense for a defined contribution pension
plan.
8) The off-balance sheet treatment of special purpose entities applies only when
financial assets are transferred.
9) A reason prompting a firm to purchase treasury stock is that management believes
the stock is undervalued in the marketplace and therefore represents a good investment
opportunity.
10) Net realizable value equals the sales price minus reasonable further costs to both
make the item ready to sell and to sell it.
11) Innovative securities permitted mortgage originators to convert loans into
immediate cash rather than having to wait for borrowers to make periodic payments.
12) If a lease contains a residual value guarantee, the lessee must add that guaranteed
amount to the present value of the minimum lease payments.
13) Companies are required to disclose their estimate of pension funding for the
upcoming year.
14) When the effective yield of a bond is the same as the stated rate on the bond, the
bond is sold at par.
15) When the risk of non-collection of installment payments is high or when there is no
reasonable basis for estimating the proportion of installment accounts receivable likely
to prove uncollectible, the cost recovery method prescribed by IFRS rules is more
conservative than the installment sales method allowed under U.S. GAAP.