1. A contingent loss should be reported in a footnote to the financial statements rather than being accrued if: (Points : 1)

MULTIPLE CHOICE

1. A contingent loss should be reported in a footnote to the financial statements rather than being accrued if: (Points : 1)

2. Which of the following investment securities held by Zoogle Inc. may be classified as held-to-maturity securities in its balance sheet? (Points : 1)

3. Large, highly rated firms sometimes sell commercial paper: (Points : 1)

4. Which of the following increases the investment account under the equity method of accounting? (Points : 1)

5. When the equity method of accounting for investments is used by the investor, the investment account is increased when: (Points : 1)

6. Which of the following is a contingency that would most likely require accrual? (Points : 1)

7. When a product or service is delivered for which a customer advance has been previously received, the appropriate journal entry includes: (Points : 1)

8. Other things being equal, most managers would prefer to report liabilities as noncurrent rather than current. The logic behind this preference is that the long-term classification permits the company to report: (Points : 1)

9. The key accounting considerations relating to accounts payable are: (Points : 1)

10. The investment category for which the investor's "positive intent and ability to hold" is important is: (Points : 1)

Click here for the solution: 1. A contingent loss should be reported in a footnote to the financial statements rather than being accrued if: (Points : 1)

Explain why each of the following phrases or clauses is used rather than the alternative provided

Auditing P 3-26 A careful reading of an unqualified report indicates several important phrases.

Explain why each of the following phrases or clauses is used rather than the alternative provided:

a. "The financial statements referred to above present fairly in all material respects the financial position" rather than "The financial statements mentioned above are correctly stated."
b. "In conformity with accounting principles generally accepted in the United States of America" rather than "are properly stated to represent the true economic conditions."
c. "In our opinion, the financial statements present fairly" rather than "The financial statements present fairly."
d. "Brown & Phillips, CPAs (firm name)," rather than "James E. Brown, CPA (individual partner's name)."
e. "We conducted our audit in accordance with auditing standards generally accepted in the United States of America" rather than "Our audit was performed to detect material misstatements in the financial statements."


Click here for the solution: Explain why each of the following phrases or clauses is used rather than the alternative provided

Which of the following companies would be MOST likely to have an operating cycle longer than one year

MULTIPLE CHOICE

1. Which of the following companies would be MOST likely to have an operating cycle longer than one year? (Points : 2)

2. Which of the following investments is NOT reported on the balance sheet at current market value? (Points : 2)

3. Marbella Company has an investment in stock, classified as available-for-sale, with the following information at December 31, 2007:
Cost = $240,000
Market value = $280,000
How would Marbella report this information? (Points : 2)

4. Cash received from the sale of long-term assets is reported as (Points : 2)

5. Emergent Markets Corporation purchased a machine for $200,000 on January 1, 2007. The estimated life is 10 years. What is the book value on the December 31, 2009 balance sheet assuming straight-line depreciation is used and estimated residual value is zero?(Points : 2)

6. The excess of cost over the fair market value of net assets acquired when one company purchases another company should be reported as a(n) (Points : 2)

7. Purple Company owns 25% of the common stock of Marroon after purchasing 45,000 shares of Marroon's stock at a price of $30 per share on January 1, 2007. At the end of the year, Marroon reported net income of $100,000 and paid dividends of $40,000. What is the book value of Purple Company's investment at year-end? (Points : 2)

8. Which statement below is true about a company's operating cycle? (Points : 2)

9. Investments in tangible assets by a company that are intended to be used in the future to manufacture and/or sell products are recorded in the books as (Points : 2)

10. The term "current assets" is usually used to refer to assets that (Points : 2)

11. Meteorite Company sells its Available-For-Sale stock investment at a price of $61 per share. It had originally been purchased at $20 per share and its most recent adjustment had been to a market value of $32 per share. What was the per share realized gain or loss on sale? (Points : 2)

12. Trading and available-for-sale securities are reported on the balance sheet at(Points : 2)

13. Which of the following is NOT an intangible asset? (Points : 2)

14. GAAP requires that intangibles other than goodwill be amortized over a period of: (Points : 2)

15. The "using-up" process or utilization of intangible assets is referred to as (Points : 2)

16. An expenditure that extends the life of an asset or enhances its value is a(n) (Points : 2)

17. The systematic allocation of the cost of a patent to the periods that benefit from its use is (Points : 2)

18. Machinery with a cost of $150,000 and a book value of $52,500 was sold for $15,000 cash plus a note receivable of $27,500. What was the net effect of this sale on the financial statement items listed below?
Assets Net Income (Points : 2)

19. A bond is purchased at a discount. What will happen to the net carrying value of the bond on the balance sheet as its maturity date approaches? (Points : 2)

20. When companies have a temporary surplus of cash, they often invest it in (Points : 2)


Click here for the solution: Which of the following companies would be MOST likely to have an operating cycle longer than one year

Suppose the realized rate of return on the market portfolio is one percentage point greater than its expected return

Suppose the realized rate of return on the market portfolio is one percentage point greater than its expected return. How would the realized rate of return compare with the expected return of a security with a beta of +2?


Click here for the solution: Suppose the realized rate of return on the market portfolio is one percentage point greater than its expected return

HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP

P 13-7 Various liabilities

HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP. The following facts apply:

a. HW is defending against a lawsuit and believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates it will need to pay a range of damages that falls between $5,000,000 and $10,000,000, with each amount in that range equally likely.
b. HW is defending against another lawsuit that is identical to item (a), but the relevant losses will only occur far into the future. The present values of the endpoints of the range are $3,000,000 and $8,000,000, with the timing of cash flow somewhat uncertain. HW considers these effects of the time value of money to be material.
c. HW is defending against another lawsuit for which management believes HW has a slightly worse than 50/50 chance of losing in court. If it loses the lawsuit, management estimates HW will need to pay a range of damages that falls between $3,000,000 and $9,000,000, with each amount in that range equally likely.
d. HW has $10,000,000 of short-term debt that it intends to refinance on a long-term basis. Soon after the balance sheet date, but before issuance of the financial statements, HW obtained the financing necessary to refinance the debt.

Required:
1. For each item, indicate how treatment of the amount would differ between U.S. GAAP and IFRS.
2. Consider the total effect of items a–d. If HW’s goal is to show the lowest total liabilities, which set of standards, U.S. GAAP or IFRS, best helps it meet that goal?


Click here for the solution: HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP

Bonds are frequently issued at amounts greater or less than face value

Bonds are frequently issued at amounts greater or less than face value. Describe how the market interest rate, relative to the contractual interest rate, affects the selling price of bonds. Also, explain the rationale for requiring an investor to pay accrued interest when a bond is purchased between interest payment dates.

Click here for the solution: Bonds are frequently issued at amounts greater or less than face value

Cleaner’s, Inc., is switching to paying employees every 2 weeks rather than weekly and will therefore “skip” 1 week’s pay

E16–2 Cleaner’s, Inc., is switching to paying employees every 2 weeks rather than weekly and will therefore “skip” 1 week’s pay. The firm has 25 employees who work a 60-hour week and earn an average wage of $12.50 per hour. Using a 10% rate of interest, how much will this change save the firm annually?

Click here for the solution: Cleaner’s, Inc., is switching to paying employees every 2 weeks rather than weekly and will therefore “skip” 1 week’s pay