Exam 8: Reconciling Bank and Credit Card Statements

Which of the following matters affecting a pension plan during a year does directly affect the expense shown in the income statement?

Under GAAP, companies do not have to accrue any liabilities for such "other post-employment benefits" as medical insurance, until employees actually retire.

The Essex Corp. is the plaintiff in a lawsuit claiming another company breached a contract by selling it poor quality goods. At the end of 2017, the company's attorneys tell the company that it is "probable" that the company will win the suit, and that the most likely amount it will win is $600,000. This is a material number. The proper accounting is to

Under GAAP, spending on internally developed intangible assets is usually expensed. An exception occurs in the case of:

A company using the allowance method of accounting for bad debts has already set up an allowance for doubtful accounts. It now decides that one particular balance, for customer X, of $300, is uncollectible. The appropriate way to "write off" this item is:

Historically, bankers and lenders have tended to favor conservative accounting principles.

Under GAAP, the rule for when a loss contingency must be accrued is that it must be

Which of the following events would cause the estimate of a company's obligation under its defined benefit plan to decrease?

The Rugby Corp. is trying to decide how to record a loss contingency. It believes the likelihood of a payment is probable, but it believes that there is a range of possible amounts it will have to pay, from $10 million to $20 million. Each amount in the range is equally likely. Under GAAP, the accrual must be

The method of accounting for bad debts that recognizes an expense at the time specific customers' accounts are "written off" is the "allowance method."

Compared to the allowance method of accounting for bad debts, the direct write-off method requires companies to do more estimation.

The Lehmann Corp. has a defined benefit pension plan. The actuaries say that the value of the liabilities to current and future retirees is $200 million. The pension plan now has a variety of investments, which cost $170 million and have a fair value of $190 million. The Lehmann Corp.'s balance sheet should show:

Under GAAP, the usual rule for accounting for research and development expenditures is to

If a company is too conservative, and records too large an adjustment for a "lower of cost or market" adjustment in one period, then its income in later periods will be reduced when the estimation error is corrected.

Under FASB rules, a material loss contingency must be accrued if it is both "probable" and "reasonably estimable."

The rules for recording financial guarantees require a company that makes a guarantee to record

Under U.S. rules, after a company "writes down" an inventory item to a "market" value, it should later increase the carrying value of the inventory item if the market for the item improves.

Normal accounting under GAAP assumes that companies will continue to operate normally, as "going concerns."

When the SEC was formed, in the 1930s, it tended to favor aggressive accounting principles over conservative ones, to help encourage investors to buy stocks.

The FASB requires companies to use the allowance method of accounting for bad debts whenever bad debts are likely to be significant for the company.