1) “Book value” refers to the amount at which an account is carried in the company’s
accounting records as opposed to “carrying amount” which refers to the amount at
which an account is reported in the company’s financial statements.
2) Under IFRS rules, if a firm uses the direct method, a reconciliation of net income to
cash flows from operating activities is not required.
3) A common action taken by creditors in the event of default is to renegotiate the loan.
4) Although most companies use straight-line depreciation for their financial
statements, making valid comparisons across firms is often hindered due to differences
in estimated useful lives.
5) Costs expensed with the passage of time are called period costs.
6) Since net income is earned as a result of complex, multiple-stage processes, the key
issue in net income determination is the timing of net income recognition.
7) Investments in held-to-maturity debt investments must be accounted for using
amortized cost.
8) A seller may recognize revenue when the production of the goods is complete if the
buyer requests that the transaction be on a “bill and hold” basis and has a substantial
business purpose for such a request.
9) The SEC passed Regulation Fair Disclosure (Reg FD) to ensure that financial
statement users have access to all the financial information they need to make
decisions.
10) When a company factors its receivables with recourse, the company cannot be
required to pay the factor if a customer’s account proves uncollectible.
11) On January 1, 2015, Waddle Company adopted a compensatory stock option plan
and granted its managers 10,000 options to buy shares of common stock; each option
can be used to acquire a share of common stock at a price of $25 a share. The fair value
of each option was $7.50 on January 1, 2015. The options can be converted into
common stock after July 1, 2015. The required service period is three years.
Which of the following arguments was not used to support the continuation of the
accounting for stock-based compensation plans as allowed under APB Opinion No. 25?
A.Stock options do not involve a cash flow, therefore the recording of an expense
would violate appropriate income measurement.
B.The Black-Scholes method of valuing stock options has not been widely accepted and
is arbitrary.
C.The fair value approach could jeopardize compliance with contract terms and
conditions.
D.The fair value approach would increase expenses and lower net income which would
result in lower stock prices.
12) Selected data of the Peninsula Company follow:
Required:
a. What is the accounts receivable turnover for 2014?
b. What is the inventory turnover for 2014?
13) Which of the following statements is correct?
A.Firms with high marginal tax rates tend to have lower funding ratios.
B.The short-term pension risk ratio is calculated by dividing the projected benefit
obligation by the market value of common stock.
C.The funded status of a pension plan does not throw light on cash flow problems.
D.Firms with less stringent capital constraints tend to have higher funding ratios.
14) The use of the lower of cost or market method to value inventory for reporting
purposes employs the accounting principle of
A.cost-benefit.
B.matching.
C.historical cost.
D.conservatism.
15) Condensed financial data are presented below for the Phoenix Corporation:
The return on assets ratio for 2014 is (rounded):
A.16.3%
B.16.9%
C.17.7%
D.18.2%