Exam 2: Asset and Liability Valuation and Income Recognition

Firms may not include all income taxes for a period on the line for income tax expense in the income statement.Other places that income tax expenses may occur include all of the following except:

Which of the following valuation methods reflects current values?

Firms recognize the reduction in service potential of assets such as patents and trademarks using the process of ____________________.

The analytical framework used to evaluate transactions is reproduced below: Cash + Non-Cash = Liabilities + Contributed + Accumulated Other + Retained Assets Capital Comprehensive Earnings Income Using this analytical framework,indicate the effect of each of the following transactions for Staples Corporation: 1.Staples recorded cash sales of $25,000.The merchandise had cost $19,000 to manufacture. 2.Staples purchased $8,500 of raw material inventory on account. 3.The company paid $2,500 for property insurance for the next 12 months. 4.Staples paid its employees $5,000 for the month. 5.The company purchased $1,000 of supplies on account. 6.Staples issued $25,000 of long-term debt. 7.The company used $10,000 of excess cash to purchase marketable securities. 8.Staples purchased a machine for $16,000 using $8,000 cash with the balance on account. 9.Staples paid $2,500 for interest expense on the long-term debt. 10.At the end of the year the marketable securities that Staples purchased in transaction 7 were now worth $14,500. 11.Depreciation for the period was $1,500. 12.Staples examined the equipment and determined that its fair value was $10,000.

Net income equals revenues plus ____________________ minus expenses and ____________________.

What level are inputs for estimating fair values are based on inputs that are readily available via prices for identical assets or liabilities in actively traded markets such as securities exchanges?

The traditional accounting model delays the recognition of value changes of assets and liabilities until what event occurs?

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?

Balance Sheet Equation Cash + Non-Cash = Liabilities + Contributed + Accumulated Other + Retained Assets Capital Comprehensive Earnings Income -Refer to the Balance Sheet Equation.To recognize the cost of goods sold ORP Corporation will reduce retained earnings and reduce ______________________________.

Shareholders' equity consists of what three components:

When income tax expense for a period is greater than income tax payable the difference will be reported how and on which financial statement?

Fellsmere Company's income tax return shows income taxes for 2010 of $35,000.The firm reports deferred tax assets before any valuation allowance of $32,600 at the beginning of 2010 and $35,200 at the end of 2010.It reports deferred tax liabilities of $26,900 at the beginning of 2010 and $24,300 at the end of 2010. Required: a.Assume for this part that the valuation allowance on the deferred tax assets totaled $14,400 at the beginning of 2010 and $15,100 at the end of 2010.Compute the amount of income tax expense for 2010. b.Assume for this part that the valuation allowance on the deferred tax assets totaled $14,400 at the beginning of 2010 and $12,700 at the end of 2010.Compute the amount of income tax expense for 2010.

The financial statement disclosures for Able Company,a retail chain,revealed the following information regarding the firm's income taxes: For the Year Ended January 31: 2011 2010 Income before Income Taxes: United States Income Tax Expense Current: Federal \ 919 \ 680 State and Local Total Current Deferred: Federal \9 4 \1 95 State and Local Total Deferred Total $\begin{array}{l}\begin{array}{|ll}\\\hline\text { January } 31\\\hline\text { Components of Deferred Tax Assets and Liabilities } \\\hline\text { Deferred Tax Assets: } \\\hline\text { Self-Insured Benefits } \\\hline\text { Deferred Compensation } \\\hline\text { Inventory } \\\hline \text { Postretirement Health Care Obligation } \\\hline \text { Uncollectible Accounts } \\\hline \text { Other } \\\hline \text { Total Deferred Tax Assets } \\\hline \text { Deferred Tax Liabilities: } \\\hline \text { Depreciation } \\\hline \text { Pensions } \\\hline \text { Other } \\\hline \text { Total Deferred Tax Liabilities } \\\hline \text { Net Deferred Tax Liability }\\\hline\\\end{array}\begin{array}{|c|}\hline 2011 \\\hline \\\hline \\\hline \$ 190 \\\hline 333 \\\hline 48 \\\hline 39 \\\hline 148 \\\hline\underline{ 129} \\\hline\underline{ \$ 887} \\\hline \\\hline \$(1,137) \\\hline(269) \\\hline\underline{(97)} \\\hline \underline{\$(1,503)} \\\hline\underline{\$(616) }\\\hline\end{array}\begin{array}{c|}\hline2010 \\\hline \\\hline \\\hline \$ 154 \\\hline 298 \\\hline 45 \\\hline 43 \\\hline 134 \\\hline\underline{ 54}\\\hline\underline{\$ 728} \\\hline \\\hline \$(946) \\\hline (219)\\\hline(85)\\\hline \underline{\$(1,250)} \\\hline\underline{ \$(522)}\\\hline\end{array}\begin{array}{c|}\hline{2009} \\\hline \\\hline \\\hline \$ 199 \\\hline 185 \\\hline 57 \\\hline 42 \\\hline 114 \\\hline\underline{167}\\\underline{\$ 764 }\\\hline \\\hline \$(827) \\\hline(191) \\\hline\underline{(60)}\\\hline\underline{(1,078)} \\\hline\underline{ \$(314)} \\\hline\end{array}\end{array}$ Required: a.Assuming that Able had no significant permanent differences between book income and taxable income,did income before taxes for financial reporting exceed or fall short of taxable income for 2010? Explain. b.Did income before taxes for financial reporting exceed or fall short of taxable income for 2011? Explain. c.Will the adjustment to net income for deferred taxes to compute cash flow from operations in the statement of cash flows result in an addition or a subtraction for 2010? For 2011? d.Able does not contract with an insurance agency for property and liability insurance; instead,it self-insures.Able recognizes an expense and a liability each year for financial reporting to reflect its average expected long-term property and liability losses.When it experiences an actual loss,it charges that loss against the liability.The income tax law permits self-insured firms to deduct such losses only in the year sustained. Why are deferred taxes related to self-insurance disclosed as a deferred tax asset instead of a deferred tax liability? Suggest reasons for the direction of the change in amounts for this deferred tax asset between 2009 and 2011. e.Able treats certain storage and other inventory costs as expenses in the year incurred for financial reporting but must include these in inventory for tax reporting.Why are deferred taxes related to inventory disclosed as a deferred tax asset? Suggest reasons for the direction of the change in amounts for this deferred tax asset between 2009 and 2011. f.Firms must recognize expenses related to postretirement health care and pension obligations as employees provide services,but claim an income tax deduction only when they make cash payments under the benefit plan.Why are deferred taxes related to health care obligation disclosed as a deferred tax asset? Why are deferred taxes related to pensions disclosed as a deferred tax liability? Suggest reasons for the direction of the change in amounts for these deferred tax items between 2009 and 2011. g.Firms must recognize expenses related to uncollectible accounts when they recognize sales revenues,but claim an income tax deduction when they deem a particular customer's accounts uncollectible.Why are deferred taxes related to this item disclosed as a deferred tax asset? Suggest reasons for the direction of the change in amounts for this deferred tax asset between 2009 and 2011. h.Able uses the straight-line depreciation method for financial reporting and accelerated depreciation methods for income tax purposes.Why are deferred taxes related to depreciation disclosed as a deferred tax liability? Suggest reasons for the direction of the change in amounts for this deferred tax liability between 2009 and 2011.

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

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?

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

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. 

Current replacement cost represents:

For each of the items below,determine whether the items are temporary differences or permanent differences. For each temporary difference,determine whether a deferred tax asset or deferred tax liability is created by the temporary difference described.Assume that each of the temporary differences described is an originating difference. 1.Accrued bad debt expense 2.The dividends received deduction 3.Installment sales revenue 4.Insurance payments for executives for which the company is the beneficiary 5.Fines paid for law violations 6.Municipal bond interest 7.Accrued warranty expense 8.Revenues received in advance 9.Expenses paid for in advance (prepaid insurance) 10.Tax depreciation expense exceeds GAAP (book)depreciation expense

The amount that a company would have to pay today to acquire an asset it now holds is called ________________________________________.