1) Absorption costing makes it difficult for financial statement users to interpret
year-to-year changes in reported income when inventory levels change between one
year and the next.
2) The quick ratio does not include inventory in the denominator because few
businesses can instantaneously convert their inventories into cash.
3) The disposal group notion under IFRS rules envisions a larger unit than the
component of an entity notion under U.S. GAAP.
4) Executory costs of a lease are treated as operating expenses by the lessee.
5) The FASB/IASB joint discussion paper on financial statement presentation sets forth
two core presentation principles: (1) cohesiveness principle, and (2) disaggregation
principle.
6) Compared to U.S. GAAP, IASB standard generally allow firms more latitude.
7) The par value of common stock is set by the state government.
8) When using purchase accounting to account for a business combination, the
subsidiary’s assets and liabilities are reported on the consolidated balance sheet at their
fair values at the date of purchase regardless of whether there is a noncontrolling
interest.
9) Treating the taxes paid each year as an expense in the income statement could result
in an inappropriate matching between pre-tax book income and income tax expense.
10) In the context of revenue recognition, an “arrangement” means there is a final
understanding between the parties as to the specific nature and terms of the agreed-upon
transaction.
11) An expense included in the determination of taxable income this year but not
included in book income until next year is an example of a timing difference.
12) Executives often prefer taking “real actions” as opposed to “accounting actions” to
hit earnings targets because auditors cannot as readily challenge real economic actions.
13) Mortgage applications fraud played a role in the recent economic crisis.
14) Companies can change accounting methods, but the changes are restricted to
situations where it can be persuasively argued that the newly adopted accounting
method is preferable to the old one.
15) Because of interest capitalization, an increase in capital expenditures can
temporarily decrease the amount of interest expense shown on the income statement.