Question 1

Which of the following is/are not true regarding the classification of redeemable preferred shares on the balance sheet?

Accepted Answer

A) The classification of redeemable preferred shares on the balance sheet depends on the conditions for redemption. 
B) If only the issuing firm has the option to redeem, then the preferred shares are part of its liabilities. 
C) If the issuing firm must redeem the preferred shares (so-called "mandatory redemption"), either at a specified time or upon a specified condition certain to occur, the issuing firm treats the preferred shares as a liability. 
D) If the preferred shareholders have the option to require redemption, then the preferred shares appear between liabilities and shareholders' equity under U.S.GAAP. 
E) If the preferred shareholders have the option to require redemption, then the preferred shares appear as a liability under IFRS. 
A) The classification of redeemable preferred shares on the balance sheet depends on the conditions for redemption. 
B) If only the issuing firm has the option to redeem, then the preferred shares are part of its liabilities. 
C) If the issuing firm must redeem the preferred shares (so-called "mandatory redemption"), either at a specified time or upon a specified condition certain to occur, the issuing firm treats the preferred shares as a liability. 
D) If the preferred shareholders have the option to require redemption, then the preferred shares appear between liabilities and shareholders' equity under U.S.GAAP. 
E) If the preferred shareholders have the option to require redemption, then the preferred shares appear as a liability under IFRS.

Question 2

Firms must designate each derivative as a hedging instrument, or else accounting views the derivative as a nonhedging instrument.Furthermore, firms must designate each hedging instrument as either a fair value hedge or a cash flow hedge.The accounting for fair value hedges

Accepted Answer

A) remeasures both the hedged item and the derivative to fair value each period and recognize any unrealized gains and losses in net income. 
B) remeasures the derivative to fair value each period and include the unrealized gain or loss in other comprehensive income to the extent that the derivative instrument is effective in neutralizing risk.When the firm settles the hedged item, transfer the previously unrealized gain or loss from other comprehensive income to net income. 
C) remeasures the derivative to fair value each period and include the unrealized gain or loss in net income. 
D) all of the above 
E) none of the above 
A) remeasures both the hedged item and the derivative to fair value each period and recognize any unrealized gains and losses in net income. 
B) remeasures the derivative to fair value each period and include the unrealized gain or loss in other comprehensive income to the extent that the derivative instrument is effective in neutralizing risk.When the firm settles the hedged item, transfer the previously unrealized gain or loss from other comprehensive income to net income. 
C) remeasures the derivative to fair value each period and include the unrealized gain or loss in net income. 
D) all of the above 
E) none of the above

Question 3

Which of the following is not true?

Accepted Answer

A) For accounting purposes, goodwill arises only when a firm acquires another entity in an external market transaction and pays more for that entity than the fair value of the identifiable assets net of identifiable liabilities. 
B) Goodwill is the excess of the amount paid for the acquired company over the fair value of identifiable net assets. 
C) Goodwill, because it includes unidentifiable intangible resources, has an indefinite life. 
D) Indefinite does not mean infinite, only not knowable. 
E) Firms amortize goodwill. 
A) For accounting purposes, goodwill arises only when a firm acquires another entity in an external market transaction and pays more for that entity than the fair value of the identifiable assets net of identifiable liabilities. 
B) Goodwill is the excess of the amount paid for the acquired company over the fair value of identifiable net assets. 
C) Goodwill, because it includes unidentifiable intangible resources, has an indefinite life. 
D) Indefinite does not mean infinite, only not knowable. 
E) Firms amortize goodwill.

Question 4

The FASB's conceptual framework defines a(n) _____ as inflows or other enhancements of assets of an entity or settlements of its liabilities from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations.

Accepted Answer

A) assets 
B) liabilities 
C) equities 
D) revenues 
E) expenses 
A) assets 
B) liabilities 
C) equities 
D) revenues 
E) expenses

Question 5

U.S.GAAP permits firms to measure the cost of goods sold and the amount of ending inventories for a period using the

Accepted Answer

A) specific identification method. 
B) first-in, first-out (FIFO) cost-flow assumption. 
C) weighted-average cost-flow assumption. 
D) last-in, first-out (LIFO) cost-flow assumption. 
E) all of the above. 
A) specific identification method. 
B) first-in, first-out (FIFO) cost-flow assumption. 
C) weighted-average cost-flow assumption. 
D) last-in, first-out (LIFO) cost-flow assumption. 
E) all of the above.

Question 6

Which of the following is/are not true?

Accepted Answer

A) U.S.GAAP and IFRS permit the employer to prepare consolidated financial statements with the retirement trust. 
B) The employer must report the net funded status of each defined benefit retirement plan (that is, the fair value of retirement trust assets minus the retirement trust obligation) as either an asset or a liability on its balance sheet. 
C) The employer must report the net funded status of each defined benefit retirement plan and credit (for an overfunded plan) or debit (for an underfunded plan) is to Other Comprehensive Income. 
D) Notes to the financial statements provide information about investments made by the retirement trust and how trust assets and liabilities changed during a period. 
E) all of the above 
A) U.S.GAAP and IFRS permit the employer to prepare consolidated financial statements with the retirement trust. 
B) The employer must report the net funded status of each defined benefit retirement plan (that is, the fair value of retirement trust assets minus the retirement trust obligation) as either an asset or a liability on its balance sheet. 
C) The employer must report the net funded status of each defined benefit retirement plan and credit (for an overfunded plan) or debit (for an underfunded plan) is to Other Comprehensive Income. 
D) Notes to the financial statements provide information about investments made by the retirement trust and how trust assets and liabilities changed during a period. 
E) all of the above

Question 7

Firms may not issue equity interests with different rights, such as one class of common stock with 10 votes per share and another class of common stock with one vote per share.

Accepted Answer

A) True 
 B)False

Question 8

Firms report many financial liabilities as the present value of the amount payable, except that firms can ignore discounting for liabilities due within one year.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is/are not true?

Accepted Answer

A) U.S.GAAP and IFRS do not permit the employer to prepare consolidated financial statements with the retirement trust. 
B) The employer must report the net funded status of each defined benefit retirement plan (that is, the fair value of retirement trust assets minus the retirement trust obligation) as either an asset or a liability on its balance sheet. 
C) The employer must report the net funded status of each defined benefit retirement plan and credit (for an overfunded plan) or debit (for an underfunded plan) is to Other Comprehensive Income. 
D) Notes to the financial statements do not provide information about investments made by the retirement trust and how trust assets and liabilities changed during a period. 
E) all of the above 
A) U.S.GAAP and IFRS do not permit the employer to prepare consolidated financial statements with the retirement trust. 
B) The employer must report the net funded status of each defined benefit retirement plan (that is, the fair value of retirement trust assets minus the retirement trust obligation) as either an asset or a liability on its balance sheet. 
C) The employer must report the net funded status of each defined benefit retirement plan and credit (for an overfunded plan) or debit (for an underfunded plan) is to Other Comprehensive Income. 
D) Notes to the financial statements do not provide information about investments made by the retirement trust and how trust assets and liabilities changed during a period. 
E) all of the above

Question 10

U.S.GAAP and IFRS require firms to account for correction of errors, if material, by

Accepted Answer

A) restating net income of prior periods and adjusting the beginning balance in Retained Earnings for the current period. 
B) restating net income of prior periods and adjusting the ending balance in Retained Earnings for the current period. 
C) restating net income of the current period and adjusting the beginning balance in Retained Earnings for the current period. 
D) restating net income of the current period and adjusting the ending balance in Retained Earnings for the current period. 
E) restating net income of the current period, only. 
A) restating net income of prior periods and adjusting the beginning balance in Retained Earnings for the current period. 
B) restating net income of prior periods and adjusting the ending balance in Retained Earnings for the current period. 
C) restating net income of the current period and adjusting the beginning balance in Retained Earnings for the current period. 
D) restating net income of the current period and adjusting the ending balance in Retained Earnings for the current period. 
E) restating net income of the current period, only.

Question 11

The criteria for recognition of a liability include which of the following?

Accepted Answer

A) The obligation represents a present obligation, not a potential future commitment or intent. 
B) The obligation exists as a result of a past transaction or exchange, called the obligating event. 
C) The obligation requires the probable future sacrifice of an economic resource that the firm has little or no discretion to avoid. 
D) The obligation has a relevant measurement attribute that the firm can quantify with sufficient reliability. 
E) all of the above 
A) The obligation represents a present obligation, not a potential future commitment or intent. 
B) The obligation exists as a result of a past transaction or exchange, called the obligating event. 
C) The obligation requires the probable future sacrifice of an economic resource that the firm has little or no discretion to avoid. 
D) The obligation has a relevant measurement attribute that the firm can quantify with sufficient reliability. 
E) all of the above

Question 12

Which of the following is/are not true?

Accepted Answer

A) U.S.GAAP and IFRS do not require the employer to recognize changes in the funded status of a defined benefit retirement plan on its balance sheet each period. 
B) U.S.GAAP and IFRS do not require the employer to recognize changes in the funded status of a defined benefit retirement plan immediately in net income. 
C) Changes in the net funded status of a defined benefit retirement plan because investment performance differs from expectations, or because of changes in actuarial assumptions, or in the retirement benefit formula, initially affect other comprehensive income. 
D) Firms amortize the amounts in Other Comprehensive Income over the expected period of benefit as an adjustment to retirement plan cost. 
E) all of the above 
A) U.S.GAAP and IFRS do not require the employer to recognize changes in the funded status of a defined benefit retirement plan on its balance sheet each period. 
B) U.S.GAAP and IFRS do not require the employer to recognize changes in the funded status of a defined benefit retirement plan immediately in net income. 
C) Changes in the net funded status of a defined benefit retirement plan because investment performance differs from expectations, or because of changes in actuarial assumptions, or in the retirement benefit formula, initially affect other comprehensive income. 
D) Firms amortize the amounts in Other Comprehensive Income over the expected period of benefit as an adjustment to retirement plan cost. 
E) all of the above

Question 13

(CMA adapted, Jun 96 #18) The book value per share calculation of a corporation is usually significantly different from the market value of the stock's selling price due to the

Accepted Answer

A) use of accrual accounting in preparing financial statements. 
B) use of the matching principle in preparing financial statements. 
C) omission of the number of preferred shares outstanding at year end in the calculation. 
D) use of historical costs in preparing financial statements. 
E) none of the above. 
A) use of accrual accounting in preparing financial statements. 
B) use of the matching principle in preparing financial statements. 
C) omission of the number of preferred shares outstanding at year end in the calculation. 
D) use of historical costs in preparing financial statements. 
E) none of the above.

Question 14

IFRS defines market as net realizable value, the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs to make the sale.

Accepted Answer

A) True 
 B)False

Question 15

Firms account for leases using either the operating lease method or the capital (finance) lease method.Which of the following is not true?

Accepted Answer

A) The capital, or finance, lease method treats leases equivalent to installment purchases or sales, where the lessee borrows funds from the lessor to purchase the asset and the lessor recognizes profit at the time of sale. 
B) The lessee records the leased asset and the lease liability on the balance sheet at the present value of the contractual cash flows at the time of signing the lease. 
C) The lessor amortizes the leased asset, similar to recognizing depreciation on buildings and equipment. 
D) The lessee recognizes interest expense on the lease liability, similar to recognizing interest expense on long-term notes or bonds. 
E) The lessor records the signing of a capital lease the same as if the lessor sold the leased asset for an installment note receivable. 
A) The capital, or finance, lease method treats leases equivalent to installment purchases or sales, where the lessee borrows funds from the lessor to purchase the asset and the lessor recognizes profit at the time of sale. 
B) The lessee records the leased asset and the lease liability on the balance sheet at the present value of the contractual cash flows at the time of signing the lease. 
C) The lessor amortizes the leased asset, similar to recognizing depreciation on buildings and equipment. 
D) The lessee recognizes interest expense on the lease liability, similar to recognizing interest expense on long-term notes or bonds. 
E) The lessor records the signing of a capital lease the same as if the lessor sold the leased asset for an installment note receivable.

Question 16

Firms account for leases using either the operating lease method or the capital (finance) lease method.Which of the following is true?

Accepted Answer

A) The operating lease method treats leases as executory contracts. 
B) The operating lease method recognizes a leased asset on the lessee's statement of cash flows. 
C) The operating lease method recognizes a lease liability on the lessee's balance sheet. 
D) Under the operating lease method, the lessor does not recognize rent revenue as the lessee uses the leased asset over time. 
E) Under the operating lease method, the lessee does not recognize rent expense as the lessee uses the leased asset over time. 
A) The operating lease method treats leases as executory contracts. 
B) The operating lease method recognizes a leased asset on the lessee's statement of cash flows. 
C) The operating lease method recognizes a lease liability on the lessee's balance sheet. 
D) Under the operating lease method, the lessor does not recognize rent revenue as the lessee uses the leased asset over time. 
E) Under the operating lease method, the lessee does not recognize rent expense as the lessee uses the leased asset over time.

Question 17

Discuss the definition, recognition, and measurement of gains and losses.

Accepted Answer

Gains and Losses
Gains (losses) are incr

Question 18

U.S.GAAP and IFRS require firms to recognize as assets identifiable intangibles acquired in external market transactions. Which of the following is/are not true?

Accepted Answer

A) The exchange between an independent buyer and seller provides evidence of the existence of expected future benefits, and the exchange price provides evidence of the fair value of those benefits. 
B) In external market transactions, identifiable intangibles include patents, trademarks, customer lists, and other economic resources ready for use, as well as in-process technologies with uncertain future benefits. 
C) In external market transactions, identifiable intangible assets have either finite lives or indefinite lives. 
D) In external market transactions, firms must amortize intangible assets with finite lives, generally using the straight-line method. 
E) all of the above 
A) The exchange between an independent buyer and seller provides evidence of the existence of expected future benefits, and the exchange price provides evidence of the fair value of those benefits. 
B) In external market transactions, identifiable intangibles include patents, trademarks, customer lists, and other economic resources ready for use, as well as in-process technologies with uncertain future benefits. 
C) In external market transactions, identifiable intangible assets have either finite lives or indefinite lives. 
D) In external market transactions, firms must amortize intangible assets with finite lives, generally using the straight-line method. 
E) all of the above

Question 19

Regarding employee stock options, which of the following is/are not true?

Accepted Answer

A) Firms compute a fair-value-based measure of employee stock options on the date of the grant using an option-pricing model that incorporates information about the current market price, the exercise price, the expected time between grant and exercise, the expected volatility of the stock, the expected dividends, and the risk-free interest rate. 
B) Total compensation cost is the number of options the firm expects to vest times the value per option. 
C) Firms amortize total compensation cost over the requisite service period, which is the expected period of benefit. 
D) The requisite service period is usually the period between the grant date and the vesting date. 
E) Firms typically remeasure most types of stock options after the initial grant date. 
A) Firms compute a fair-value-based measure of employee stock options on the date of the grant using an option-pricing model that incorporates information about the current market price, the exercise price, the expected time between grant and exercise, the expected volatility of the stock, the expected dividends, and the risk-free interest rate. 
B) Total compensation cost is the number of options the firm expects to vest times the value per option. 
C) Firms amortize total compensation cost over the requisite service period, which is the expected period of benefit. 
D) The requisite service period is usually the period between the grant date and the vesting date. 
E) Firms typically remeasure most types of stock options after the initial grant date.

Question 20

For financial reporting purposes, Structural Builders uses the completed contract method of accounting for long-term contracts.For tax purposes, Structural Builders uses the percentage-of-completion or the installment method of accounting for the same contract.The contract is completed in Year 3.The terms of the contract, and Structural Builders' estimate of costs to be incurred are as follows:
 $\begin{array}{lll}&\text { Cash Receipts }&\text { Cost Incurred }\
\text { Year 1 } & \$ 1,000,000 & \$ 1,500,000 \
\text { Year 2 } & 2,000,000 & 1,500,000 \
\text { Year 3 } & 3,000,000 & 1,500,000\
\text { Total }&\$6,000,000&\$4,500,000
\end{array}$ Required:

What amount of deferred tax asset/liability will be reported by Structural Builders each year if:

a.	The percentage-of-completion method is used for tax reporting?
b.	The installment method is used for tax reporting? Assume the tax rate is 35%.

Accepted Answer

The answer of For financial reporting purposes, Structural Builders uses...

Which of the following is/are not true regarding the classification of redeemable preferred shares on the balance sheet?

Firms must designate each derivative as a hedging instrument, or else accounting views the derivative as a nonhedging instrument.Furthermore, firms must designate each hedging instrument as either a fair value hedge or a cash flow hedge.The accounting for fair value hedges

Which of the following is not true?

The FASB's conceptual framework defines a(n) _____ as inflows or other enhancements of assets of an entity or settlements of its liabilities from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations.

U.S.GAAP permits firms to measure the cost of goods sold and the amount of ending inventories for a period using the

Which of the following is/are not true?

Firms may not issue equity interests with different rights, such as one class of common stock with 10 votes per share and another class of common stock with one vote per share.

Firms report many financial liabilities as the present value of the amount payable, except that firms can ignore discounting for liabilities due within one year.

Which of the following is/are not true?

U.S.GAAP and IFRS require firms to account for correction of errors, if material, by

The criteria for recognition of a liability include which of the following?

Which of the following is/are not true?

(CMA adapted, Jun 96 #18) The book value per share calculation of a corporation is usually significantly different from the market value of the stock's selling price due to the

IFRS defines market as net realizable value, the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs to make the sale.

Firms account for leases using either the operating lease method or the capital (finance) lease method.Which of the following is not true?

Firms account for leases using either the operating lease method or the capital (finance) lease method.Which of the following is true?

Discuss the definition, recognition, and measurement of gains and losses.

U.S.GAAP and IFRS require firms to recognize as assets identifiable intangibles acquired in external market transactions. Which of the following is/are not true?

Regarding employee stock options, which of the following is/are not true?

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

The Basics of Record Keeping and Financial Statement Preparation: Income Statement

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Statement of Cash Flows

Introduction to Financial Statement Analysis

Revenue Recognition, Receivables, and Advances From Customers

Working Capital

Long-Lived Tangible and Intangible Assets

Notes, Bonds, and Leases

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Marketable Securities and Derivatives

Intercorporate Investments in Common Stock

Shareholders Equity: Capital Contributions and Distributions

Statement of Cash Flows: Another Look

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Exam 17: Synthesis and Extensions

Which of the following is/are not true regarding the classification of redeemable preferred shares on the balance sheet?

Firms must designate each derivative as a hedging instrument, or else accounting views the derivative as a nonhedging instrument.Furthermore, firms must designate each hedging instrument as either a fair value hedge or a cash flow hedge.The accounting for fair value hedges

Which of the following is not true?

The FASB's conceptual framework defines a(n) _____ as inflows or other enhancements of assets of an entity or settlements of its liabilities from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations.

U.S.GAAP permits firms to measure the cost of goods sold and the amount of ending inventories for a period using the

Which of the following is/are not true?

Firms may not issue equity interests with different rights, such as one class of common stock with 10 votes per share and another class of common stock with one vote per share.

Firms report many financial liabilities as the present value of the amount payable, except that firms can ignore discounting for liabilities due within one year.

Which of the following is/are not true?

U.S.GAAP and IFRS require firms to account for correction of errors, if material, by

The criteria for recognition of a liability include which of the following?

Which of the following is/are not true?

(CMA adapted, Jun 96 #18) The book value per share calculation of a corporation is usually significantly different from the market value of the stock's selling price due to the

IFRS defines market as net realizable value, the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs to make the sale.

Firms account for leases using either the operating lease method or the capital (finance) lease method.Which of the following is not true?

Firms account for leases using either the operating lease method or the capital (finance) lease method.Which of the following is true?

Discuss the definition, recognition, and measurement of gains and losses.

U.S.GAAP and IFRS require firms to recognize as assets identifiable intangibles acquired in external market transactions. Which of the following is/are not true?

Regarding employee stock options, which of the following is/are not true?

Introduction to Business Activities and Overview of Financial Statements and the Reporting Process

The Basics of Record Keeping and Financial Statement Preparation: Balance Sheet

The Basics of Record Keeping and Financial Statement Preparation: Income Statement

Balance Sheet: Presenting and Analyzing Resources and Financing

Income Statement: Reporting Results of Operating Activities

Statement of Cash Flows

Introduction to Financial Statement Analysis

Revenue Recognition, Receivables, and Advances From Customers

Working Capital

Long-Lived Tangible and Intangible Assets

Notes, Bonds, and Leases

Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Marketable Securities and Derivatives

Intercorporate Investments in Common Stock

Shareholders Equity: Capital Contributions and Distributions

Statement of Cash Flows: Another Look

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