Exam 2: Asset and Liability Valuation and Income Measurement

Fish Farm Corporation purchases a new tract of land on which it is going to build new growing and holding tanks in order to expand its business. Which of the following costs would not be part of the cost of the land?

Items, such as interest revenue on municipal bond holdings, that do not affect taxable income or income taxes paid in any year are referred to as _____________________________________________.

The amount initially paid to acquire an asset is called ______________________________.

All of the following can be used to describe reliability of accounting information except:

The following problem requires present value information: Biotech sold a patent on a new blood analyzer to Pharma. The sales agreement which was signed on January 1, 2009 requires Pharma to pay Biotech $1 million immediately. In addition, Pharma is required to pay $600,000 each December 31 for 20 years starting with December 31, 2009. Pharma and Biotech judge that a 10 percent is an appropriate interest rate for this arrangement. a. Compute the present value of the receivable on Biotech’s books on January 1, 2009 immediately after receiving the $1 million down payment. b. Compute the present value of the receivable on Biotech’s books on December 31, 2009. c. Compute the present value of the receivable on Biotech’s books on December 31, 2010.

Acquisition costs includes all costs necessary to get an asset ready for its _________________________.

Future taxable income is characteristic of all of the following situations except:

Shareholders' equity consists of what three components:

Plaxo Corporation has a tax rate of 35% and uses the straight-line method of depreciation for its equipment, which has a useful life of four years. Tax legislation requires the company to depreciate this type of equipment using the following schedule: year 1- 50%, year 2 - 30%, year 3 - 15% and year 4 - 5%. In 2011 Plaxo purchases a piece of equipment with a four year life and an original cost of $100,000. Discuss how this transaction will effect Plaxo's income taxes in 2011.

On January 1, 2010, Starlight Company's balance sheet reported a deferred tax liability of $185,000 and a deferred tax asset of $99,900. The future taxable amounts that existed as of January 1, 2010 will reverse equally over the next four years beginning in 2010, while the future deductible amounts that existed as of January 1, 2010 will reverse equally over the next three years beginning in 2010. The enacted income tax rate for all tax years as of January 1, 2010 was 37%. On February 1, 2010, the tax laws were amended resulting in income tax rates of 38% for 2010 and 2011; the income tax rate will be 40% for tax years 2012 and later. Required: Prepare the journal entry on February 1, 2010 to record the impact of the amended income tax rates.

Firms use acquisition cost valuations and adjusted acquisition cost valuations for which of the following types of assets?

Discuss the three ways in which GAAP allows value changes to be treated in the financial statements. Provide an example of each value change treatment.

When recognizing deferred tax assets and liabilities, the income statement approach and the balance sheet approach yield identical results

If a portfolio manager had to estimate the fair value of investments in timber, which of the following would he/she most likely identify as the level of inputs to determine this?

The income statement approach to measuring income tax expense

Accord Inc. income tax return shows taxes currently payable for 2011 of $85,000. The company reported deferred tax assets of $35,000 at the end of 2010 and $24,000 at the end of 2011. Accord reported deferred tax liabilities of $48,000 at the end of 2011 and $54,000 at the end of 2011. Determine the amount of income tax expense reported by Accord for 2011.

H. Solo Company purchased a new piece of equipment with a list price of $175,000 and subject to a 5 percent discount if paid within 45 days. H. Solo paid within the discount period. The company also paid $1,500 to obtain title to the equipment and $600 as the license fee for the first year of operation. It paid $2,500 to level the area in which the equipment would be located and $12,500 to relocate other equipment that would have interfered with the proper operation of the new equipment. H. Solo paid $400 for property and liability insurance for the first year of operation. What is the acquisition cost of this equipment that H. Solo should record in its accounting records? Indicate the treatment of any amount not included in acquisition cost.

Future tax deductions