Exam 6: Analyzing Operating Activities

If the software refinement had been capitalized and amortized over a three year period beginning in the year the cost was incurred, but was expensed for tax purposes, the deferred tax position at the end of fiscal 2005 would have been:

A deferred tax liability imposes an obligation on the business to pay taxes.

Comprehensive income differs from net income in that it reflects certain unrealized holding gains and losses foreign currency translation adjustments, and minimum pension liability adjustments.

Under long-term performance contracts-such as product warranty contracts and software maintenance contracts-revenues are often collected in advance and are recognized proportionally over the entire period of the contract.

Smythe Corporation is in the real estate development business. If they sell a piece of land for $50,000 that they had previously purchased for $45,000, they should record a loss of $5,000.

Timing is one of the few revenue recognition issues that are seldom a concern in financial analysis.

Comprehensive income is computed by adjusting net income for dirty surplus items.

Compared with companies that expense costs, firms that capitalize costs can be expected to report:

If an expense is recognized for financial reporting purposes but not allowed as a bona-fide deduction for tax purposes, this results in a deferred tax asset.

Many companies have significant deferred taxes. Deferred taxes are not always long-term liabilities. For the categories below, state whether deferred taxes can arise in this category and provide an example. i. Current Liabilities ii. Long-term liabilities iii. Stockholders' Equity iv. Current Assets v. Long-term assets

Which of the following is true with respect to extraordinary items? I. Extraordinary items are recorded net of tax in income statement. II. Extraordinary items, by definition, are probable and unusual in nature. III. By definition, gains and losses from strikes are always extraordinary. IV. By definition, gains and losses from sale of plant, property and equipment are never extraordinary.

What will be the diluted EPS if average stock price during the year is $35 and treasury shares that can be purchased are 1000?

The matching principle in accounting prescribes that costs must be recognized in the same period when the related revenues are recognized.

Accounting changes are usually cosmetic and do not yield cash flow consequences.

A long term asset is said to be impaired when its fair value is below its book value.

Which of the following measures of accounting income is typically reported in an income statement?

If revenue is recognized for financial reporting purposes but deferred for tax purposes this results in a deferred tax liability.

The following information was extracted from Smurm Corporation's 2006 annual report: Common stock Shares outstanding 12/31/05 90 Million New shares issued 4/1/06 10 Million Shares outstanding 12/31/06 100 Million Preferred stock \ 10 par, 10\% , convertible into 2 shares of common stock, shares Outstanding 50Million Options 1 Million options, each to purchase one common share at \ 50 per Share Market price of stock Average for year \ 75 Beginning of year \ 70 End of year \ 78 Preferred dividends paid \ 50,000,000 Net Income for 2006 \ 350,000,000 -Using the treasury stock method, the options would result in how many extra shares being recognized in the diluted EPS calculation:

The following information was extracted from Smurm Corporation's 2006 annual report: Common stock Shares outstanding 12/31/05 90 Million New shares issued 4/1/06 10 Million Shares outstanding 12/31/06 100 Million Preferred stock \ 10 par, 10\% , convertible into 2 shares of common stock, shares Outstanding 50Million Options 1 Million options, each to purchase one common share at \ 50 per Share Market price of stock Average for year \ 75 Beginning of year \ 70 End of year \ 78 Preferred dividends paid \ 50,000,000 Net Income for 2006 \ 350,000,000 -Diluted earnings per share for 2006 was:

Which of the following statements concerning deferred taxes is correct?