Question 1

Under an operating lease agreement the lessee recognizes ______________________________ each period that the leased asset is used.

Accepted Answer

The answer of Under an operating lease agreement the lessee...

Question 2

According to U.S. GAAP, which of the following provides the most reliable measure for fair value measurement?

Accepted Answer

A)  Observable market data serving as inputs into estimates into present value-based measurements such as foreign exchange rates. 
B)  Quoted market prices of identical assets or liabilities in inactive markets 
C)  Observable quoted market prices in active markets for identical assets or liabilities 
D)  Unobservable inputs used by the reporting entity when modeling how the market would determine the fair value of the asset or liability in question 
A)  Observable market data serving as inputs into estimates into present value-based measurements such as foreign exchange rates. 
B)  Quoted market prices of identical assets or liabilities in inactive markets 
C)  Observable quoted market prices in active markets for identical assets or liabilities 
D)  Unobservable inputs used by the reporting entity when modeling how the market would determine the fair value of the asset or liability in question

Question 3

In the chart below, assign the directional effect (I = increase, D = decrease, or NE = no effect) of each of the following six transactions on the components of the book value of common shareholders' equity.
a. Issuance of $1 par value common stock at an amount greater than par value.
b. Donation by a governmental unit to a corporation.
c. Cash dividend declared.
d. Previously declared cash dividend paid.
e. Property dividend declared and paid.
f. Large stock dividend declared and issued.
 \(\begin{array}{c}
\begin{array}{|l|}
\hline \text {Item}\
\
\hline \text {a.}\
\hline \text {b.}\
\hline \text {c.}\
\hline \text {d.}\
\hline \text {e.}\
\hline \text {f.}\
\hline 
\end{array}
\begin{array}{l|}
\hline \text {Common Stock}\
\
\hline\
\hline\
\hline\
\hline \
\hline\
\hline\
\hline
\end{array}
\begin{array}{l|}
\hline \text {Additional Paid-In}\
\text {Capital}\
\hline \
\hline \
\hline\
\hline \
\hline  \
\hline  \
\hline
\end{array}
\begin{array}{l|}
\hline \text {Deferred}\
\text {Compensation}\
\hline\
\hline \
\hline \
\hline \
\hline\
\hline\
\hline 
\end{array}
\begin{array}{l|}
\hline \text {Retained}\
\text {Earrings}\
\hline \
\hline\
\hline \
\hline\
\hline \
\hline \
\hline
\end{array}
\begin{array}{l|}
\hline \text {Treasuiy Stock}\
 \text {at Cost}\
\hline \
\hline \
\hline \
\hline \
\hline \
\hline \
\hline
\end{array}
\begin{array}{l|}
\hline \text {Total Common}\
\text {Shareholders'Equity}\
\hline \
\hline \
\hline \
\hline   \ 
\hline\ 
\hline\
\hline 
\end{array}
\end{array}\)

Accepted Answer

@#IMG-DLM& * The direct effect of the property div

Question 4

All of the following are benefits of leasing except:

Accepted Answer

A)  They have the ability to shift the tax benefits from depreciation and other deductions from a lessee that has little or no taxable income to a lessor that has substantial taxable income. 
B)  They provide flexibility to change capacity as needed without having to purchase or sell assets. 
C)  They have the ability to reduce the risk of technological obsolescence, relative to outright ownership, by maintaining the flexibility to shift to technologically more advanced assets. 
D)  In an operating lease, the lessee recognizes the signing of the lease as the simultaneous acquisition of a long-term asset and the incurring of a long-term liability for lease payments. 
A)  They have the ability to shift the tax benefits from depreciation and other deductions from a lessee that has little or no taxable income to a lessor that has substantial taxable income. 
B)  They provide flexibility to change capacity as needed without having to purchase or sell assets. 
C)  They have the ability to reduce the risk of technological obsolescence, relative to outright ownership, by maintaining the flexibility to shift to technologically more advanced assets. 
D)  In an operating lease, the lessee recognizes the signing of the lease as the simultaneous acquisition of a long-term asset and the incurring of a long-term liability for lease payments.

Question 5

One of the conditions that must be met to recognize an estimated loss from a contingency is that the amount of loss can be estimated with ________________________________________.

Accepted Answer

reasonable

Question 6

FASB has set forth all of the following conditions for recognizing transfers of receivables as sales only if the following conditions of surrendering control of the receivables are met except:

Accepted Answer

A)  The assets transferred have been isolated from the selling firm. 
B)  The buying firm obtains the right to pledge or exchange the transferred assets, and no condition both constrains the transferee from taking advantage of its right and provides more than a trivial benefit to the transferor. 
C)  The selling firm does not maintain effective control over the assets transferred through (a) an agreement that both entitles and obligates it to repurchase the assets or (b) the ability to unilaterally cause the transferee to return specific assets. 
D)  A creditor of the selling firm can access the receivables in the event of the seller's bankruptcy. 
A)  The assets transferred have been isolated from the selling firm. 
B)  The buying firm obtains the right to pledge or exchange the transferred assets, and no condition both constrains the transferee from taking advantage of its right and provides more than a trivial benefit to the transferor. 
C)  The selling firm does not maintain effective control over the assets transferred through (a) an agreement that both entitles and obligates it to repurchase the assets or (b) the ability to unilaterally cause the transferee to return specific assets. 
D)  A creditor of the selling firm can access the receivables in the event of the seller's bankruptcy.

Question 7

All of the following are typically recognized as accounting liabilities except:

Accepted Answer

A)  Bonds Payable 
B)  Rental Fees Received in Advance 
C)  Loan Guarantees 
D)  Taxes Payable 
A)  Bonds Payable 
B)  Rental Fees Received in Advance 
C)  Loan Guarantees 
D)  Taxes Payable

Question 8

Which of the following is the typical tradeoff when issuing preferred stock?

Accepted Answer

A)  The tradeoff between different accounting for an initial issuance of preferred stock as compared to a common stock issuance. 
B)  The tradeoff between maintaining corporate control and creating a class of shareholders with preference in all asset distributions. 
C)  The tradeoff of giving common shareholders priority over preferred shareholders in corporate liquidations. 
D)  The tradeoff of a convertibility feature of common shares into preferred shares. 
A)  The tradeoff between different accounting for an initial issuance of preferred stock as compared to a common stock issuance. 
B)  The tradeoff between maintaining corporate control and creating a class of shareholders with preference in all asset distributions. 
C)  The tradeoff of giving common shareholders priority over preferred shareholders in corporate liquidations. 
D)  The tradeoff of a convertibility feature of common shares into preferred shares.

Question 9

Which of the following is the date on which a company determines the owners of the stock that will receive a dividend?

Accepted Answer

A)  date of record 
B)  measurement date 
C)  date of declaration 
D)  date of payment 
A)  date of record 
B)  measurement date 
C)  date of declaration 
D)  date of payment

Question 10

Under U.S. GAAP, which of the following items would require a lessee to classify a lease of equipment as a capital lease?

Accepted Answer

A)  There is no transfer of ownership to the lessee at the end of the lease term. 
B)  The lease does not contain a bargain purchase option. 
C)  The lease term is 90% of the estimated economic life of the lease property. 
D)  The present value of the contractual minimum lease payments is 75% of the fair value of the leased property. 
A)  There is no transfer of ownership to the lessee at the end of the lease term. 
B)  The lease does not contain a bargain purchase option. 
C)  The lease term is 90% of the estimated economic life of the lease property. 
D)  The present value of the contractual minimum lease payments is 75% of the fair value of the leased property.

Question 11

In the chart below, assign the directional effect (I = increase, D = decrease, or NE = no effect) of each of the following six transactions on the components of the book value of common shareholders' equity.
a. Small stock dividend declared and issued.
b. 2-for-1 stock split announced and issued.
c. Stock options granted.
d. Recognition of compensation expense on stock options.
e. Stock options exercised.
f. Stock options expired.
 \(\begin{array}{c}
\begin{array}{|l|}
\hline \text {Item}\
\
\hline \text {a.}\
\hline \text {b.}\
\hline \text {c.}\
\hline \text {d.}\
\hline \text {e.}\
\hline \text {f.}\
\hline 
\end{array}
\begin{array}{l|}
\hline \text {Common Stock}\
\
\hline\
\hline\
\hline\
\hline \
\hline\
\hline\
\hline
\end{array}
\begin{array}{l|}
\hline \text {Additional Paid-In}\
\text {Capital}\
\hline \
\hline \
\hline\
\hline \
\hline  \
\hline  \
\hline
\end{array}
\begin{array}{l|}
\hline \text {Deferred}\
\text {Compensation}\
\hline\
\hline \
\hline \
\hline \
\hline\
\hline\
\hline 
\end{array}
\begin{array}{l|}
\hline \text {Retained}\
\text {Earrings}\
\hline \
\hline\
\hline \
\hline\
\hline \
\hline \
\hline
\end{array}
\begin{array}{l|}
\hline \text {Treasuiy Stock}\
 \text {at Cost}\
\hline \
\hline \
\hline \
\hline \
\hline \
\hline \
\hline
\end{array}
\begin{array}{l|}
\hline \text {Total Common}\
\text {Shareholders'Equity}\
\hline \
\hline \
\hline \
\hline   \ 
\hline\ 
\hline\
\hline 
\end{array}
\end{array}\)

Accepted Answer

@#IMG-DLM& *Indicate

Question 12

Summarize how the following information about Crank Corp.'s restructuring would affect the balance sheet and income statement summary chart below. Crank Corp.'s restructuring will take approximately 18 months and was announced on March 15, 2010:
 (1) OnMarch 15, 2010 Crank Corp. announce dits restructuring and recognized a re structuring charge of $ \$ 845 $,000.
(2) The tax effect of the restructuring charge was estimated to be $ \$ 230,000 $.
(3) Crank detemined that the cost of disposing and removing facilities and equipment during 2010 $ \$ 312,000 $.
(4) The tax effect associated with the disposal and removal of facilities and equipment are $ \$ 95,000 $.
(5) Crank Corp. made cash payments to severed employees and le ssors for lease terminations in 2010 equal to $ \$ 78,000 $.
(6) The tax effect of the severance payments and lease cancellationswas $ \$ 19,000 $.

Accepted Answer

The answer of Summarize how the following information about Crank...

Question 13

NOTE: The following problem requires present value information.
On January 1, 2012, Porter Corporation signed a five-year noncancelable lease for certain machinery. The terms of the lease called for:
A)	Porter to make annual payments of $60,000 at the end of each year (starting on Dec. 31, 2012) for five years. Porter must return the equipment to the lessor end of this period.
B)	The machinery has an estimated useful life of 6 years and no expected salvage value.
C)	Porter uses the straight-line method of depreciation for all of its fixed assets.
D)	Porter’s incremental borrowing rate is 8%.
E)	The fair value of the asset at January 1, 2012 is $275,000.

Required:
1.	Discuss whether Porter should account for the lease as an operating or capital lease and why.
2.	Using the above information determine how the lease would affect Porter’s financial statements in 2013. Use the balance sheet equation below to show the effects.

C	+	N$A	=	L	+	CC	+	AOCI	+	RE

Accepted Answer

1.The lease should be accounted for as a

Question 14

Under IFRS, cash payments for interest can be reported as an

Accepted Answer

A)  operating cash outflow 
B)  investing cash outflow 
C)  financing cash outflow 
D)  Both A and C are correct. 
A)  operating cash outflow 
B)  investing cash outflow 
C)  financing cash outflow 
D)  Both A and C are correct.

Question 15

Which of the following is not a condition that requires capital lease accounting?

Accepted Answer

A)  The lease term extends for more than 70% of the assets economic life. 
B)  The lease agreement transfers ownership of the leased asset to the lessee. 
C)  The lease agreement contains a bargain purchase option. 
D)  The present value of the minimum lease payments equals or exceeds 90% of the fair market value of the asset. 
A)  The lease term extends for more than 70% of the assets economic life. 
B)  The lease agreement transfers ownership of the leased asset to the lessee. 
C)  The lease agreement contains a bargain purchase option. 
D)  The present value of the minimum lease payments equals or exceeds 90% of the fair market value of the asset.

Question 16

Porter Corporation 
NOTE: The following multiple choice questions require present value information.
On January 1, 2012, Porter Corporation signed a five-year noncancelable lease for certain machinery. The terms of the lease called for:
$\begin{array}{|l|lcc|}
 \hline \text {1) } & \text {Price to make amual payments of $ \$ 60,000 $ at the end of each year (starting on Dec. $ \quad 31,2012 $ ) for five years. Porter must return  }  & \text {  }\
&\text {  the equipment to the lessor end of this period.}\
\hline \text {2)  } & \text { The machinery has an estimated useful life of 6 years and no expected salvage value. } & \text {  }\
\hline \text {3) } & \text {Porter usesthe straight-line method of depreciation for all of its fixed assets.  } & \text {  }\
 \hline\text {4) } & \text { Porter's incremental borrowing rate is $ 8 \% $. } & \text {  }\
\hline \text {5)  } & \text {The fair value of the asset at Januaty 1,2012 is $ \$ 275,000 $.  } & \text {  }\
\hline
\end{array}$

-
 For the year ended December 31, 2012, Porter should record depreciation expense for the leased equipment equal to

Accepted Answer

A)  $55,000 
B)  $39,927 
C)  $47,912 
D)  $0 
A)  $55,000 
B)  $39,927 
C)  $47,912 
D)  $0

Question 17

Which kind of dividends typically pay dividends with investments in other corporations' stock?

Accepted Answer

A)  property dividend 
B)  stock dividend 
C)  liquidating dividend 
D)  scrip dividend 
A)  property dividend 
B)  stock dividend 
C)  liquidating dividend 
D)  scrip dividend

Question 18

NOTE: This problem requires present value information.
Charter Corp. manufactures office equipment and supplies throughout the U.S. The company owns property, plant, and equipment and also enters into operating leases for certain facilities. The company's tax rate is 35%. Listed below is selected financial data for Charter and the company's operating lease disclosure.
 $\begin{array}{lll}
&2012&2011&2010\
\text { Property, Plant, \& Equipment (net) } & \$ 178,454 & \$ 162,369 &\$155,388\
\text { Total Assets } & 515,685 & 424,545&410,256 \
\text { Common Shareholders'Equity } & 302,754 & 298,564&289,455 \
\
\text { Sales } &  \$ 986,258&\$888,965\
\text { Cost of GoodsSold } &693,857 & 588,920 \
\text { Depreciation Expense } &  \
\text { Interest Expense } &84.253 & 75,689 \
\text { Net Income } & 124,581&91,025\

\end{array}$ $\begin{array}{|l|l|}
\hline & \text { Charter Corp. } \
\hline & \text { Operating Lease Disclosure } \
\hline & \text { (amounts in thousands) } \
\hline & \
\hline & \text { Operating Lease Comunitments } \
\hline & \text { at the end of } 2012 \
\hline & \
\hline & \
\hline \text { Year } & \text { Reported Lease Comumitments } \
\hline 2013 & \$ 25,239 \
\hline 2014 & \$ 52,800 \
\hline 2015 & \$ 78,924 \
\hline 2016 & \$ 48,760 \
\hline 2017 & \$ 45,678 \
\hline \text { Bevond } 2017 & \$ 212,000 \
\hline
\end{array}$
 
As an analyst you wish to restate Charter’s operating leases into capital leases.

Required:
a.	Using the information in the operating lease disclosure, and assuming that Charter has an incremental borrowing rate for secured debt of 8%, restate the operating leases into capital leases.
b.	Estimate the average life of the operating leases.
c.	Calculate Charter’s fixed asset turnover ratio as reported.
d.	Would Charter’s fixed asset turnover ratio increase or decrease, assuming that the operating leases were capitalized?

Accepted Answer

a. Calculate the present value of the op

Question 19

Which of the following is not normally recognized as a liability on the balance sheet?

Accepted Answer

A)  Warranties Payable. 
B)  Bonds payable. 
C)  Subscription Fees Received in Advance. 
D)  Employment Commitments. 
A)  Warranties Payable. 
B)  Bonds payable. 
C)  Subscription Fees Received in Advance. 
D)  Employment Commitments.

Question 20

Which is the date when employees elect to exchange the option and cash for shares of common stock?

Accepted Answer

A)  vesting date 
B)  grant date 
C)  exercise date 
D)  market date 
A)  vesting date 
B)  grant date 
C)  exercise date 
D)  market date

Under an operating lease agreement the lessee recognizes ______________________________ each period that the leased asset is used.

According to U.S. GAAP, which of the following provides the most reliable measure for fair value measurement?

All of the following are benefits of leasing except:

One of the conditions that must be met to recognize an estimated loss from a contingency is that the amount of loss can be estimated with ________________________________________.

FASB has set forth all of the following conditions for recognizing transfers of receivables as sales only if the following conditions of surrendering control of the receivables are met except:

All of the following are typically recognized as accounting liabilities except:

Which of the following is the typical tradeoff when issuing preferred stock?

Which of the following is the date on which a company determines the owners of the stock that will receive a dividend?

Under U.S. GAAP, which of the following items would require a lessee to classify a lease of equipment as a capital lease?

Under IFRS, cash payments for interest can be reported as an

Which of the following is not a condition that requires capital lease accounting?

Which kind of dividends typically pay dividends with investments in other corporations' stock?

Which of the following is not normally recognized as a liability on the balance sheet?

Which is the date when employees elect to exchange the option and cash for shares of common stock?

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Measurement

Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows

Profitability Analysis

Risk Analysis

Investing Activities

Operating Activities

Accounting Quality

Forecasting Financial Statements

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

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Exam 6: Financing Activities

Under an operating lease agreement the lessee recognizes ______________________________ each period that the leased asset is used.

According to U.S. GAAP, which of the following provides the most reliable measure for fair value measurement?

All of the following are benefits of leasing except:

One of the conditions that must be met to recognize an estimated loss from a contingency is that the amount of loss can be estimated with ________________________________________.

FASB has set forth all of the following conditions for recognizing transfers of receivables as sales only if the following conditions of surrendering control of the receivables are met except:

All of the following are typically recognized as accounting liabilities except:

Which of the following is the typical tradeoff when issuing preferred stock?

Which of the following is the date on which a company determines the owners of the stock that will receive a dividend?

Under U.S. GAAP, which of the following items would require a lessee to classify a lease of equipment as a capital lease?

Under IFRS, cash payments for interest can be reported as an

Which of the following is not a condition that requires capital lease accounting?

Which kind of dividends typically pay dividends with investments in other corporations' stock?

Which of the following is not normally recognized as a liability on the balance sheet?

Which is the date when employees elect to exchange the option and cash for shares of common stock?

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Measurement

Income Flows Versus Cash Flows: Understanding the Statement of Cash Flows

Profitability Analysis

Risk Analysis

Investing Activities

Operating Activities

Accounting Quality

Forecasting Financial Statements

Risk-Adjusted Expected Rates of Return and the Dividends Valuation Approach

Valuation: Cash-Flow-Based Approaches

Valuation: Earnings-Based Approaches

Valuation: Market-Based Approaches

Filters