Which of the following is not a comprehensive basis of accounting other than generally accepted accounting principles?
A. Basis of accounting used by an... [Show More] entity to comply with the financial reporting requirements of a government regulatory agency
B. Cash receipts and disbursements basis of accounting
C. Basis of accounting used by an entity to file its income tax return
D. Basis of accounting used by an entity to comply with the financial reporting requirements of a lending institution
D.
The following accounting bases may be used to prepare financial statements in conformity with a comprehensive basis of accounting other that GAAP:
1. income tax basis of accounting
2. cash basis of accounting
3. modified cash basis of accounting
4. basis of accounting used by an entity to comply with the financial reporting requirements of a government regulatory agency.
5. a definite set of criteria having substantial support that is applied to all material items in the financial statements.
An other comprehensive basis of accounting (OCBOA) outside of the permitted bases listed above is prohibited. A basis of accounting used by an entity to comply with the financial reporting requirements of a lending institution is not a permitted OCBOA.
One criterion for a capital lease is that the term of the lease must equal a minimum percentage of the leased property's economic life at the inception of the lease. The minimum percentage is:
A. 75%
B. 41%
C. 50%
D. 90%
A.
A lease is classified as a capital lease if one of the following criteria is met:
1. the title is transferred to the lease at the end of the lease period.
2. a bargain purchase option exists
3. the lease period is a t least 75% of the asset's life.
4. the present value of the minimum lease payments is at least 90% of the fair value of the asset
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On January 15, Year 5 Rice Co. declared its annual cash dividend on common stock for the year ended January 31, Year 5. The dividend was paid on February 9, Year 5, to stockholders of record as of January 28, Year 5. On what date should Rice decrease retained earnings by the amount of the dividend?
A. January 15, year 5
B. January 31, year 5
C. January 28, year 5
D. February 9, year 5
A.
Retained earnings is decreased and a current liability for the cash dividend is recorded on the declaration date, in this case, January 15, year 5
For interim financial reporting, a company's income tax provision for the second quarter of a given year should be determined using the:
A. Statutory tax rate for the year
B. effective tax rate expected to be applicable for the second quarter of the year
C. effective tax rate expected to be applicable for the full year, as estimated at the end of the first quarter of the year
D. effective tax rate expected to be applicable for the full year, as estimated at the end of the second quarter of the year.
D.
The company should use the effective tax rate expected to be applicable for the full year as estimated at the end of the second quarter of the year because the interim period is considered an integral part of the accounting year
What type of bond matures at different points in time?
A. Bearer Bonds
B. Term Bonds
C. Serial Bonds
D. Unsecured Bonds
C.
Serial bonds refer to bonds within an issue that mature at different points in time. Generally, serial bonds are retired according to their registration number. Note that bonds within a term bond issue all mature at the same time. Unsecured bonds are backed only by the general credit of the borrower and are not backed by any specific property. In the case of a bearer bond, there is no record of ownership - interest is paid to the holder of the bond.
Which of the following statements comparing straight-line depreciation methods to alternative depreciation methods is least accurate? Companies that use:
A. accelerated depreciation methods will increase the total amount of depreciation expense in the latter years of the asset's life.
B. accelerated depreciation methods will decrease the amount of taxes in early years.
C. straight-line depreciation methods will have higher book values for the assets on the balance sheet than companies that use accelerated depreciation in the early years.
D. units-of-production methods to depreciate assets will overstate income during periods of low production.
A.
Accelerated depreciation methods will increase the amount of depreciation expense in the early years of the asset's life, but the depreciation expense will be less in the latter years of the asset's life. All other answer options are true.
Gar Co. factored its receivables without recourse with Ross Bank. Gar received cash as a result of this transaction, which is best described as a:
A. Sale of Gar's accounts receivable to Ross, with the risk of uncollectible accounts retained by Gar.
B. Sale of Gar's accounts receivable to Ross, with the risk of uncollectible accounts transferred to Ross.
C. Loan from Ross collateralized by Gar's accounts receivable.
D. Loan from Ross to be repaid by the proceeds from Gar's accounts receivables.
B.
Factoring of receivables is a sale of the receivables to another party. "Without recourse" means that Gar Co. has transferred the risk for the uncollectible accounts to Ross Bank and Ross does not have any recourse against Gar Co. if the accounts are not collected. Thus, Gar has sold the accounts receivable to Ross Bank along with the risk associated with the uncollectible accounts.
Reportable segments are not required to disclose which of the following:
A. Inter-segment sales.
B. Capital expenditures.
C. Amortization expense.
D. Long-term debt.
D.
Long-term debt and all liabilities are not required disclosures on segment data. All the other choices are required disclosures.
During 2009, Tedd Co. became involved in a tax dispute with the IRS. At December 31, 2009, Tedd's tax advisor believed that an unfavorable outcome was probable. A reasonable estimate of additional taxes was $400,000, but could be as much as $600,000. After the 2009 financial statements were issued, Tedd received and accepted an IRS settlement offer of $450,000. What amount of accrued liability should Tedd have reported in its December 31, 2009, balance sheet?
A. $400,000.
B. $450,000.
C. $500,000.
D. $600,000.
A.
The minimum amount within the range must be accrued since an unfavorable outcome is probable.
Extraordinary items are:
A. reported above the line.
B. unusual and infrequent.
C. unusual or infrequent.
D. reported on the balance sheet.
B.
Extraordinary items are unusual and infrequent, reported below the line separate from income from continuing operations on the income statement, and would include such items as: foreign government confiscation, earthquake damages, losses from volcanic eruptions, etc.
Presenting consolidated financial statements this year when statements of individual companies were presented last year is
A. A correction of an error.
B. An accounting change that should be reported prospectively.
C. An accounting change that should be reported by restating the financial statements of all prior periods presented.
D. Not an accounting change.
C.
This is a change in accounting entity which requires restatement of prior periods being presented.
The following computations were made from Clay Co.'s 2009 books: What was the number of days in Clay's 2009 operating cycle?
Number of days' sales in Inventory: 61
Number of days' sales in trade accounts receivable: 33
A. 33.
B. 47.
C. 61.
D. 94.
D.
The operating cycle is the average time for a company to expend cash for inventory, process and sell the inventory, and collect the resulting receivables, converting them back into cash. The number of days in the operating cycle (94) is equal to the number of days' sales in inventory (61), plus the number of days' sales in accounts receivable (33).
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Which of the following is NOT a criteria for a lease to be classified as a capital lease?
A. The lease term is equal to 90% or more of the estimated economic life of the asset.
B. Ownership in the asset is transferred at the end of the lease term.
C. The lease contains a bargain purchase option.
D. The present value of the minimum lease payments is 90% or more of the fair value of the asset at the inception of the lease.
A.
To be considered a capital lease, the lease term should be equal to 75 percent or more of the estimated economic life of the asset, not 90 percent.
An entity purchased shares of its $100 par stock for retirement that was originally issued at $200 per share. The entity repurchased the stock for $250 per share. Upon retirement, which of the following accounts would NOT be affected?
A. Paid-in capital.
B. Common stock.
C. Treasury stock.
D. Retained earnings.
C.
When the stock of an entity is purchased specifically for retirement, it is no longer able to be reissued and therefore would NOT affect treasury stock. The entity would record the transaction by removing the common stock at its par value, with any additional paid-in capital that was originally recorded being removed as well.
The difference between the original issue price and the reacquisition price requires a reduction in retained earnings because the entity repurchased the stock for an amount greater than the original issuance price.
A reduction in the cash paid for the stock is recorded as well. The journal entry for the repurchase and retirement of one share of its outstanding stock would appear as follows:
Debit: Common stock $100
Debit: Paid-in capital $100
Debit: Retained earnings $50
Credit: Cash $250
Conceptually, interim financial statements can be described as emphasizing
A. Timeliness over reliability.
B. Reliability over relevance.
C. Relevance over comparability.
D. Comparability over neutrality.
A.
Interim statements are affected by estimates, cost allocations, seasonality and other factors which may affect the usefulness of the information. Therefore, the emphasis on timeliness over reliability.
St.Petersburg Glass Company plans to issue the following 10-year bond:
PV: $25,325
FV: $20,000
Annual payments: $2,000
Using straight-line amortization calculate the bond interest expense for year 1 for St. Petersburg Glass Company?
A. $532.50.
B. $1,467.50.
C. $4,792.50.
D. Bond interest expense cannot be amortized.
B.
The bond interest expense for St. Petersburg Glass Company would be $1,467.50. The amortized amount of the bond premium is subtracted from the annual payments. $5,325/10 = 532.50, $2,000 - 532.50 = $1,467.50.
Calculate depreciation for year 2 based on the following information:
Historical cost $40,000
Useful life 5 years
Salvage value $3,000
Year 1 depreciation $7,400
A. $7,400.
B. $8,000.
C. $8,600.
D. $13,040.
A.
The depreciation method used must be straight line because year 1 depreciation is $7,400 (($40,000 - $3,000) / 5 = $7,400).
Year 2 depreciation would also be $7,400. [Show Less]
