1) Lenders have several courses of action available when a borrower is in default.
2) There is more than one commonly used debt ratio.
3) A deferred tax asset can be fully recognized without adjustment if management
believes that the probability of future taxable income sufficient to fully realize the
deferred tax asset is greater than 50%.
4) In both farming and mining there is general agreement that the critical event in
adding value usually comes before the actual sale.
5) Financial statement disclosures concerning income taxes provides financial analysts
with information regarding the transactions that had an impact on the yearend deferred
income taxes balance.
6) ROCE measures a company’s performance in using capital provided by common
shareholders to generate earnings.
7) While it is possible to estimate the amount of inventory holding gain (or loss) that is
embedded in a company’s FIFO earnings number, this approximation only works as
long as the total number of inventory units on hand does not fluctuate much during the
year and as long as purchases and sales take place frequently.
8) Indefinite-lived intangible assets must be evaluated for impairment at least annually.
9) Expenditures included in the cost of a long-lived asset are capitalized.
10) U.S. GAAP and IFRS are both grounded in the same economic performance
philosophy.
11) When determining the discount rate to apply to a firm’s expected future cash flows,
analysts should select a rate that reflects the risk (or uncertainty) associated with these
cash flows.
12) The degree to which the accounting actually represents the underlying economic
events is faithful representation.
13) Managers’ ability to freely choose among several alternative reporting methods
makes it more difficult for a financial analyst to evaluate the activities and condition of
a company.
14) The prepaid/accrued pension cost reported within the balance sheet must reflect the
funded status of the pension plan.
15) Firms weigh the benefits they may gain from financial disclosures against the costs
they incur in making those disclosures.
16) Accrual accounting decouples measured earnings from operating cash inflows and
outflows.
17) A technical default occurs when the borrower violates one or more loan covenants
but has not missed any interest or principal payments.
18) Current GAAP requires the allocation of total share-based compensation cost to
expense on a straight-line basis over the vesting period.
19) A debit
A.increases Accounts Payable
B.increases Cost of Goods Sold
C.decreases Accounts Receivable
D.decreases Equipment
20) A series of immaterial errors spread across several accounts
A.will always have a material impact on earnings
B.must always be corrected
C.if found by the auditors, will result in a disclaimer
D.can, in the aggregate, have a material effect on bottom line earnings
21) The network of conventions, rules, guidelines, and procedures used by the
accounting profession is known as generally accepted
A.auditing standards
B.accounting procedures
C.accounting principles
D.auditing principles
22) Which of the following statements is not accurate with respect to the reporting
requirements regarding the fair value option?
A.Firms may elect the fair value option for a single eligible instrument without electing
it for other identical instruments
B.Once the choice is made to adopt the fair value option, the decision is irrevocable
C.Financial statement disclosures must include management’s rationale for electing the
fair value option
D.The fair value option is not available for security investments that are accounted for
using the equity method
23) GAAP establishes specific criteria for the treatment of leases. If any of the criteria
are met, the lessee
A.must treat the lease as an operating lease
B.must treat the lease as a capital lease
C.may choose the treatment if two or less criteria are met
D.may elect to treat the lease as an operating lease if only one criterion is met
24) The lessor of a building with an operating lease will present on its balance sheet an
asset equal to
A.zero
B.the present value of future lease receipts
C.the depreciated historical cost of the asset
D.the fair value of the leased asset
25) Which of the following is not indicative of a complex capital structure?
A.Outstanding convertible bonds
B.Outstanding convertible preferred stock
C.Outstanding cumulative preferred stock
D.Outstanding stock options
26) A component that is valuation-relevant, but is not expected to persist into the future
is a
A.permanent earnings component
B.transitory earnings component
C.noise component
D.quiet component
27) The Ness Company sells $5,000,000 of five-year, 10% bonds at the start of the year.
The bonds have an effective yield of 9%. Present value factors are below:
The bond carrying value at the end of Year 2 is
A.$4,805,525
B.$5,000,000
C.$5,126,556
D.$5,194,475
28) Condensed financial data are presented below for the Phoenix Corporation:
If there is no preferred stock, the common earnings leverage for 2012 is (rounded):
A.92.0%
B.94.8%
C.100.0%
D.104.7%
29) The IASB and the FASB have ongoing projects on pensions and other retiree
benefits. Which of the following statements is incorrect regarding this projects?
A.The FASB’s project is inactive while the it concentrates on projects related to
financial instruments, leases, and financial presentation
B.The IASB’s project would require firms to recognize past service costs as part of
service cost in the year of plan amendment
C.The FASB’s project would require the components of pension expense to be
aggregated on the statement of comprehensive income
D.The IASB’s project would require firms to recognize actuarial gains and losses OCI,
but subsequently these gains and losses would not be amortized
30) Financial analysts recognize that the deficiency of the FIFO cost flow assumption is
the failure to
A.match current costs with current revenues
B.match current costs with oldest revenues
C.match oldest costs with current revenues
D.match oldest costs with oldest revenues
31) Preparing comprehensive financial statement forecasts involves six steps. Among
these steps are all of the following except
A.Project sales revenue for each period in the forecast horizon
B.Forecast depreciation expense and tax expense for each period
C.Forecast the company’s financial structure and dividend policy for each period
D.All of the above are steps typically taken when preparing financial statement
forecasts
32) Accounting for long-term credit sales transactions utilizing notes receivable
A.ignores interest unless an interest rate is specified in the note
B.makes it difficult to assess the degree to which a company’s overall earnings are due
to profitable credit sales versus profitable customer financing
C.achieves a clear separation between income from credit sales and interest earned
D.is controversial because it necessitates use of an assumed interest rate
33) When tax expense equals current taxes payable to the IRS plus (minus) the increase
(decrease) in deferred tax liabilities, tax expense is properly matched for the
A.current period
B.previous period
C.future period
D.tax return
34) In the banking industry, the ratio of invested capital/gross assets, as defined by
RAP, is the
A.capital asset ratio
B.capital adequacy ratio
C.gross asset ratio
D.indirect capital ratio
35) Doggy Co. began construction of a new cutter for the U.S. Coast Guard on January
1, 2011 and completed construction of the ship on October 31, 2012 . To finance
construction, Doggy took out an $8,000,000, 2-year 6% construction loan on February
1, 2011 . Interest on the loan was to be paid annually on the anniversary date of the
loan. Doggy has no other outstanding interest-bearing debt. Doggy made the following
expenditures in conjunction with this construction project:
What would be the amount of Doggy’s cumulative weighted average expenditure during
2011 related to the cutter project?
A.$2,150,000
B.$2,325,000
C.$2,536,364
D.$4,300,000
36) If a company fails to disclose information about a lawsuit because it might be
embarrassing to the company, it is violating
A.relevance
B.verifiability
C.neutrality
D.timeliness
37) If a bank sells a mortgage portfolio at a price that yields the purchasers a return that
is lower than that yielded, on average, by the mortgages in the portfolio, the selling
price
A.is equal to the carrying value of the mortgages on the bank’s books
B.is lower than the carrying value of the mortgages on the bank’s books
C.is higher than the carrying value of the mortgages on the bank’s books
D.cannot be determined by examining the carrying value of the mortgages on the bank’s
books because the selling price is determined purely by the market
38) If Edsel uses the gross accounts receivable approach for estimating bad debt
expense, the allowance for uncollectibles account after the proper adjustments to the
accounts are recorded, should show a balance of
A.$2,600
B.$3,600
C.$5,600
D.$6,200
39) The Ness Company sells $5,000,000 of five-year, 10% bonds at the start of the year.
The bonds have an effective yield of 9%. Present value factors are below:
The amount of bond premium amortization for Year 2 is
A.$32,497
B.$35,422
C.$38,895
D.$50,000
40) Compared to a firm with a capital lease, operating leases help the lessee firm earn
A.higher asset turnover ratio
B.lower return on assets
C.higher debt-to-equity ratio
D.lower NOPAT
41) Any increase in an asset may be offset by
A.a corresponding decrease in a liability
B.a decrease in some other asset account
C.a corresponding decrease in owner’ equity
D.an increase in another asset account
42) The cash flow statement of the United Company is in process for 2012 . The United
Company is reporting the following balances:
During 2012, United sold equipment costing $30,000 for $12,000 and made several
purchases of new equipment for cash.
Depreciation expense for 2012 is
A.$8,000
B.$20,000
C.$18,000
D.$28,000
43) At December 31, 2011, the Floyd Company reported a $29,600 deferred tax asset
pertaining to a $80,000 temporary difference which will reverse equally during the next
four years; Floyd also reported a $7,400 deferred tax liability pertaining to a $20,000
temporary difference which will reverse during 2012 . After determining the deferred
tax asset and liability on December 31, 2011, Floyd’s management was informed that
the income tax rate for years subsequent to 2011 had been changed to 35%. As a result
of the tax rate change, Floyd’s 2011 income tax expense will
A.increase $1,200
B.decrease $1,200
C.decrease $444
D.increase $444
44) Duke Power & Light just spent $10 million to repair one of its electrical grid
substations that was heavily damaged by a lightning strike. The loss was not insured.
Required:
Why would a utility ask the public service commission for approval to treat the $10
million as an asset for rate-making purposes rather than as an allowed expense?
45) The Hurricane Company provided the following information for the year ended
December 31, 2012:
Required:
1> Determine the cash paid for interest during 2012 .
2> Determine the cash paid for income taxes during 2012 .
46) On February 1, 2011, Singer, Inc. received a $100,000, nine-month, 10%
interest-bearing note from a customer. The note was discounted on April 1, 2011 at
Second National Bank at 12%.
Required:
Compute the amount of cash received by Singer from the bank and prepare the journal
entry to record the discounting of the note.
47) On December 31, 2012, Zale Company had an unadjusted debit balance of $1,000
in its allowance for uncollectible accounts. An analysis of Zale’s trade accounts
receivable at that date revealed the following:
Required:
What amount should Zale report as allowance for uncollectible accounts in its
December 31, 2011 balance sheet? Prepare any necessary adjusting entry at December
31, 2012 related to this analysis.
48) Flat Iron Corporation, a lessor, entered into a lease agreement on November 1, 2011
. The lease was for 6 years and required the lessee to make annual payments of
$187,800 on November 1st of each year; the first payment was received by Flat Iron on
November 1, 2011 . The leased asset cost Flat Iron $600,000, the implicit interest rate
was 9%, and the asset’s useful life was 6 years. There were not any uncertainties
regarding the collection of the lease payments and Flat Iron’s performance was
considered to be complete as of November 1, 2011 .
Required:
1> Determine the amount of income that will be reported by Flat Iron for the year
ended December 31, 2011 .
2> Prepare the necessary journal entries for the year ended December 31, 2011 .
49) Berg, Inc. provides exotic wedding planning services. Berg’s facilities are located in
an elevated area with a dry climate. Assume all amounts are pre-tax and a 30% tax rate
for 2011 .
Required:
Based on the available information, provide a condensed income statement for Berg,
Inc. Include all subtotals needed (appropriately labeled) to present your income
statement in good form.