1) U.S. tax laws encourage companies to overfund their pension plans.
2) Authoritative guidance on bundled (multiple-element) software sales transactions
states that if a software sales arrangement includes multiple, distinct elements, the
revenue from the arrangement should be allocated to the various elements based on
prevailing industry practices.
3) Companies that report bad news earnings surprises tend to have an upward drift in
stock returns before the actual earnings announcement date followed by a sharp
decrease in stock returns at the announcement date.
4) The return on the pension fund impacts the employer’s periodic pension expense for
defined contribution pension plans.
5) Each set of EPS numbers includes separately reported numbers for income from
continuing operations and the items that appear below it on the income statement.
6) When one party to a business relationship can make decisions that benefit him or her
but harm the other party a conflict of interest arises.
7) Companies are required to disclose details about individual temporary differences
that give rise to the deferred tax asset and deferred tax liability balances on the balance
sheet.
8) Under IFRS, operating lease treatment could be required if the leased asset is so
specialized that significant modifications would be needed for another party to use it.
9) Once a company decides to use the fair value option to account for an equity method
investment, the decision is irrevocable.
10) Fair value of an asset must reflect its “highest and best use” by others and not how it
is used by the company.
11) GAAP specifies that revenue may be recorded by the seller at the time of sale when
right of return exists as long as the seller’s price to the buyer is substantially fixed
without regard to the reasonable estimation of the amount of future returns.
12) A special purpose entity is a trust or corporation that is legally distinct from the
transferor and may be created solely for the purpose of undertaking securitization
transactions.
13) The 1984 Revised Model Business Corporation Act would potentially allow a
corporation to have negative book value of net assets after an asset distribution
occurred.
14) Analysts must be aware that with the use of absorption costing, as inventory absorbs
more fixed costs, reported income tends to decrease.
15) It is permissible for a firm that reports in accordance with IFRS to emphasize its
liquidity by placing current assets and current liabilities in close proximity to one
another on the balance sheet.
16) The percentage of completion ratio is determined by dividing costs incurred to date
by the contract price.