1) Under IFRS, an indicator that could lead to a lease being classified as a finance lease
is if the lessee cancels the lease, the lessor’s losses will be borne by the lessee.
2) Higher marginal income tax rates create an incentive for companies to underfund
their pension plans.
3) Sales value of a company’s assets minus its debt owed is a company’s liquidation
value.
4) IFRS allows more choice in valuation models for long-term assets than U.S. GAAP.
5) To preclude firms from engaging in ‘sham” exchanges to generate artificial gains,
GAAP requires that the transaction must be approved by the SEC.
6) The written agreement between the borrowing company and its creditors is referred
to as the indenture.
7) Gross Investment in Leased Asset is classified on a lessor’s balance sheet as a current
asset.
8) On balance sheets prepared in accordance with U.S. GAAP items are generally
disclosed in ascending order of liquidity.
9) To measure earnings under accrual accounting, revenues are recognized only when
they are received.
10) A company can increase its return on assets by either increasing the profit margin or
decreasing the intensity of asset utilization.
11) Companies can influence the calculation of pension expense by choosing a higher
or lower discount rate and/or by choosing a higher or lower expected rate of return on
plan assets.
12) Floating-rate debt is the most common method for lenders to protect themselves
from losses that arise as a result of increases in the market interest rate.
13) When financial statement notes regarding deferred taxes reveal a sudden decrease in
deferred tax assets, it can be a potential sign of deteriorating earnings quality.
14) Greater default risk is believed to exist when there is significant organizational
reliance on an individual, especially one who may be nearing retirement.
15) An expenditure that increases a long-lived asset’s useful life should be capitalized.
16) The interest cost component of pension expense in year two is determined by
multiplying the projected benefit obligation at the beginning of year two by the discount
rate.
17) “Accretion expense,” classified as an operating item, reflects the current period’s
growth in an asset retirement obligation.