Exam 8: Liability Recognition and Related Expenses

Many firms use derivative instruments to hedge exposure to changes in the fair value an asset or liability or to hedge exposure to variability in expected future cash flows. As an analyst examining the financial reports of a company that uses derivative instruments to hedge, what questions should be asked when thinking about derivatives and accounting quality?

Optical Networks Optical Networks is a leading semiconductor company with operations in 17 different countries. Information about the company's taxes appears below: Using the information provided by Optical Networks determine the combined effective tax rate for 2005.

NOTE: These multiple choice questions require present value information. Rudolph Corporation manufactures Christmas decorations and supplies throughout the world. The company owns property, plant, and equipment and also enters into operating leases for certain facilities. Assume that Randolph's incremental borrowing rate is 8%. The company's tax rate is 40%. Listed below is selected financial data for Rudolph and a portion of the company's operating lease footnote. Assuming that Rudolph Corporation was required to capitalize its operating lease how would the company's fixed asset ratio change under this assumption.

Which of the following accounts would not be considered a reserve account?

Optical Networks Optical Networks is a leading semiconductor company with operations in 17 different countries. Information about the company's taxes appears below: Based on the information provided by Optical Networks how much cash did income taxes use during 2005?

A derivative has one or more ____________________, which are a specified interest rate, commodity price, foreign exchange rate, or other variable.

NOTE: The following multiple choice questions require present value information. On January 1, 2006, Price Corporation signed a five-year noncancelable lease for certain machinery. The terms of the lease called for: What accounting method should Price use to account for the equipment lease?

Which of the following is not one of the three criteria for recognition of a liability?

Presented below is pension information related to Paddle Corp. for the year 2004: The amount of pension expense to be reported for 2004 is

Differences between income before taxes and taxable income result are either ____________________ or ____________________.

Which of the following is not one of the GAAP classifications for derivatives?

Which of the following calculations is used to determine the amount of the liability reported on the balance sheet for underfunding?

Panthers, Corp. implemented a defined-benefit pension plan for its employees on January 2, 2004. The following data are provided for year 2004, as of December 31, 2004. What amount should Panthers record as additional minimum pension liability at December 31, 2004?

NOTE: The following multiple choice questions require present value information. On January 1, 2006, Price Corporation signed a five-year noncancelable lease for certain machinery. The terms of the lease called for: At January 1, 2006 Price should record an asset and liability with respect to the equipment lease equal to

NOTE: The following multiple choice questions require present value information. On January 1, 2006, Price Corporation signed a five-year noncancelable lease for certain machinery. The terms of the lease called for: For the year ended December 31, 2006 Price should record depreciation expense for the leased equipment equal to

Derivatives are financial instruments that derive their value from changes in any of the following underlyings except

Derivative instruments acquired to hedge exposure to changes in the fair value of an asset or liability are ______________________________ hedges.

Optical Networks Optical Networks is a leading semiconductor company with operations in 17 different countries. Information about the company's taxes appears below: Using the information provided by Optical Networks determine the foreign effective tax rate for 2005.

NOTE: These multiple choice questions require present value information. Rudolph Corporation manufactures Christmas decorations and supplies throughout the world. The company owns property, plant, and equipment and also enters into operating leases for certain facilities. Assume that Randolph's incremental borrowing rate is 8%. The company's tax rate is 40%. Listed below is selected financial data for Rudolph and a portion of the company's operating lease footnote. Using the information provided by Rudolph Corporation estimate the average life of the operating leases.

____________________ differences result from including revenues and expenses in income before taxes in a different period than those items affect taxable income.