Question 1

Financial reporting requires that firms recognize product financing arrangements as liabilities
If which of the following conditions is met?

Accepted Answer

A)  The arrangement requires the sponsoring firm to purchase the inventory, substantially
Identical inventory, or processed goods of which the inventory is a component at specified prices. 
B)  The selling or sponsoring firm physically controls the inventory. 
C)  The payments made to the other entity cover all acquisition, holding, and financing
Costs. 
D)  Both A and C are correct. 
A)  The arrangement requires the sponsoring firm to purchase the inventory, substantially
Identical inventory, or processed goods of which the inventory is a component at specified prices. 
B)  The selling or sponsoring firm physically controls the inventory. 
C)  The payments made to the other entity cover all acquisition, holding, and financing
Costs. 
D)  Both A and C are correct. D

Question 2

Which of the following does not represent an acceptable method of transferring receivables to increase cash flow?

Accepted Answer

A)  With recourse 
B)  Without recourse 
C)  Factoring 
D)  Tax deferred Method 
A)  With recourse 
B)  Without recourse 
C)  Factoring 
D)  Tax deferred Method D

Question 3

On January 1, 2012, Porter Corporation signed a five-year non-cancelable lease for certain machinery.The terms of the lease called for:
 1) Price to make annual payments of \$60,000 at the end of each year (starting an Dec. 31, 2012) Far Ene years. Parter must return the equigment to the lessor end of this periad.
2) The machinery has an estimated useful life of o years and no exgected salvage value.
 3) Parter uses the straight-line method af depreciation far all of its fixed assets.
4) Parter's incremental barrowing rate is $8 \%$
5) The fair value of the asset at January 1,2012 is $\$ 27,000$.
-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 C

Question 4

Derivative instruments acquired to hedge exposure to variability in expected future cash are _________________________ hedges.

Accepted Answer

The answer of Derivative instruments acquired to hedge exposure to...

Question 5

On January 1, 2012, Porter Corporation signed a five-year non-cancelable lease for certain machinery.The terms of the lease called for:
 1) Price to make annual payments of \$60,000 at the end of each year (starting an Dec. 31, 2012) Far Ene years. Parter must return the equigment to the lessor end of this periad.
2) The machinery has an estimated useful life of o years and no exgected salvage value.
 3) Parter uses the straight-line method af depreciation far all of its fixed assets.
4) Parter's incremental barrowing rate is $8 \%$
5) The fair value of the asset at January 1,2012 is $\$ 27,000$.
-Under which of the following conditions does the equipment lease qualify for capital lease accounting?

Accepted Answer

A)  The lease contains a bargain purchase option. 
B)  The lease term is equal to or greater than 75% of the asset's economic life. 
C)  A, and B are correct answers. 
D)  The lease transfers ownership to the lessee at the end of the lease term. 
A)  The lease contains a bargain purchase option. 
B)  The lease term is equal to or greater than 75% of the asset's economic life. 
C)  A, and B are correct answers. 
D)  The lease transfers ownership to the lessee at the end of the lease term.

Question 6

Why can exercising stock options create cash flow problems for managers at the exercise date? What is an alternative to this problem?

Accepted Answer

Because the manager must pay the exercis

Question 7

The first date at which employees can exercise their stock options is termed the _________________________.

Accepted Answer

The answer of The first date at which employees can...

Question 8

Derivative instruments acquired to hedge exposure may be classified as either a fair value hedge or a cash flow hedge.Distinguish between the two types of hedges.

Accepted Answer

Recommended Answer from the text:
Deriva

Question 9

There are three dates that are important to a corporation when they issue new shares of stock.Identify the three dates and explain the significance of each?

Accepted Answer

The FASB requires the fair value method

Question 10

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 11

Assume that you are currently negotiating a lease transaction in the role of the lessee.Discuss whether you would rather structure the lease as an operating lease or a capital lease and why.In addition,provide the conditions that would require that the lease be accounted for as a capital lease.

Accepted Answer

Normally,most managers would probably wa

Question 12

On January 1, 2012, Porter Corporation signed a five-year non-cancelable lease for certain machinery.The terms of the lease called for:
 1) Price to make annual payments of \$60,000 at the end of each year (starting an Dec. 31, 2012) Far Ene years. Parter must return the equigment to the lessor end of this periad.
2) The machinery has an estimated useful life of o years and no exgected salvage value.
 3) Parter uses the straight-line method af depreciation far all of its fixed assets.
4) Parter's incremental barrowing rate is $8 \%$
5) The fair value of the asset at January 1,2012 is $\$ 27,000$.
-At January 1,2012,Porter should record an asset and liability with respect to the equipment lease equal to:

Accepted Answer

A)  $258,726 
B)  $239,562 
C)  $275,000 
D)  $0 
A)  $258,726 
B)  $239,562 
C)  $275,000 
D)  $0

Question 13

Under the fair value method of accounting for stock options,firms must value stock options on the date of ____________________.

Accepted Answer

The answer of Under the fair value method of accounting...

Question 14

In the chart below,assign the directional effect (I = increase,D = decrease,or NE = no effect)of each of the following four transactions on the components of the book value of common shareholders' equity.
a.Treasury stock acquired (company uses the cost method).
b.Treasury stock in transaction a.reissued at an amount greater than original acquisition
price.
c.Treasury stock in transaction a.reissued at an amount less than the original acquisition
price.
d.Restricted stock issued (grant date).
 $$\begin{array} { | c | c | c | c | c | c | c | } 
\hline \text { Item } & \begin{array} { c } 
\text { Common } \
\text { Stock }
\end{array} & \begin{array} { c } 
\text { Additional } \
\text { Paid-In } \
\text { Capital }
\end{array} & \begin{array} { c } 
\text { Deferred } \
\text { Compensation }
\end{array} & \begin{array} { c } 
\text { Retained } \
\text { Earnings }
\end{array} & \begin{array} { c } 
\text { Treasury } \
\text { Stock at } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Total Common } \
\text { Shareholders' } \
\text { Equity }
\end{array} \
\hline \text { a. } & & & & & & \
\hline \text { b. } & & & & & & \
\hline \text { c. } & & & & & & \
\hline \text { d. } & & & & & & \
\hline
\end{array}$$

Accepted Answer

\[\begin{array} { | c | c | c | c | c |

Question 15

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 par value.
b.Stock repurchased and placed in the treasury
c.Cash dividend declared.
d.Shareholders identified for dividend distribution on the date of record
e.Property dividend declared and paid.
f.Large stock dividend declared and issued.
 $$\begin{array} { | c | c | c | c | c | c | c | } 
\hline \text { Item } & \begin{array} { c } 
\text { Common } \
\text { Stock }
\end{array} & \begin{array} { c } 
\text { Additional } \
\text { Paid-In } \
\text { Capital }
\end{array} & \begin{array} { c } 
\text { Deferred } \
\text { Compensation }
\end{array} & \begin{array} { c } 
\text { Retained } \
\text { Earnings }
\end{array} & \begin{array} { c } 
\text { Treasury } \
\text { Stock at } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Total Common } \
\text { Shareholders' } \
\text { Equity }
\end{array} \
\hline \text { a. } & & & & & & \
\hline \text { b. } & & & & & & \
\hline \text { c. } & & & & & & \
\hline \text { d. } & & & & & & \
\hline \text { e. } & & & & & & \
\hline \text { f. } & & & & & & \
\hline
\end{array}$$

Accepted Answer

* The direct effect of the property divi

Question 16

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 17

A derivative has one or more ____________________,which are a specified interest rate,commodity price,foreign exchange rate,or other variable.

Accepted Answer

The answer of A derivative has one or more ____________________,which...

Question 18

In the chart below,assign the directional effect (I = increase,D = decrease,or NE = no effect)of each of the following four transactions on the components of the book value of common shareholders' equity.
a.Recognition of compensation expense related to restricted stock.
b.Granting of stock appreciation rights to be settled with cash.
c.Recognition of compensation expense on stock appreciation rights.
d.Reacquisition and retirement of common stock at an amount greater than original issue price.
 $$\begin{array} { | c | c | c | c | c | c | c | } 
\hline \text { Item } & \begin{array} { c } 
\text { Common } \
\text { Stock }
\end{array} & \begin{array} { c } 
\text { Additional } \
\text { Paid-In } \
\text { Capital }
\end{array} & \begin{array} { c } 
\text { Deferred } \
\text { Compensation }
\end{array} & \begin{array} { c } 
\text { Retained } \
\text { Earnings }
\end{array} & \begin{array} { c } 
\text { Treasury } \
\text { Stock at } \
\text { Cost }
\end{array} & \begin{array} { c } 
\text { Total Common } \
\text { Shareholders' } \
\text { Equity }
\end{array} \
\hline \text { a. } & & & & & & \
\hline \text { b. } & & & & & & \
\hline \text { c. } & & & & & & \
\hline \text { d. } & & & & & & \
\hline
\end{array}$$

Accepted Answer

\[\begin{array}{l}
\begin{array} { | c |

Question 19

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}{lrrr}
 & \underline{\mathbf{2012}} & \underline{\mathbf{2 011}} & \underline{\mathbf{2 0 10}} \
\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 \

\end{array}$

$\begin{array}{lrr}
\text { Sales } & \$ 986,258 & \$ 888,965 \
\text { Cost of Goods Sold } & 693,857 & 588,920 \
\text { Depreciation Expense } & & \
\text { Interest Expense } & 84,253 & 75,689 \
\text { Net Income } & 124.581 & 91.025
\end{array}$ 
 Charter Curp.
Operatine Larara Disclasura (anounts in thausands)
Operating Lease Camnitsents at the end of 2012
$\begin{array}{cc}
{\text { Year }} & \text { Reported Lease Commitments } \
\hline 2013 & \$ 25,239 \
2014 & \$ 52,800 \
2015 & \$ 78,924 \
2016 & \$ 48,760 \
2017 & \$ 45,678 \
\text { Beyond } 2017 & \$ 212,000
\end{array}$ 
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 ope

Question 20

Assuming that Santa Corporation was required to capitalize its operating lease,how would the company's fixed asset ratio change under this assumption?

Accepted Answer

A)  increase 
B)  decrease 
C)  no effect 
D)  unable to determine 
A)  increase 
B)  decrease 
C)  no effect 
D)  unable to determine

Financial reporting requires that firms recognize product financing arrangements as liabilities If which of the following conditions is met?

Which of the following does not represent an acceptable method of transferring receivables to increase cash flow?

Derivative instruments acquired to hedge exposure to variability in expected future cash are _________________________ hedges.

Why can exercising stock options create cash flow problems for managers at the exercise date? What is an alternative to this problem?

The first date at which employees can exercise their stock options is termed the _________________________.

Derivative instruments acquired to hedge exposure may be classified as either a fair value hedge or a cash flow hedge.Distinguish between the two types of hedges.

There are three dates that are important to a corporation when they issue new shares of stock.Identify the three dates and explain the significance of each?

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

Assume that you are currently negotiating a lease transaction in the role of the lessee.Discuss whether you would rather structure the lease as an operating lease or a capital lease and why.In addition,provide the conditions that would require that the lease be accounted for as a capital lease.

Under the fair value method of accounting for stock options,firms must value stock options on the date of ____________________.

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

A derivative has one or more ____________________,which are a specified interest rate,commodity price,foreign exchange rate,or other variable.

Assuming that Santa Corporation was required to capitalize its operating lease,how would the company's fixed asset ratio change under this assumption?

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Recognition

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

Profitability Analysis

Risk Analysis

Accounting Quality

Investing Activities

Operating Activities

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

Exam 7: Financing Activities

Financial reporting requires that firms recognize product financing arrangements as liabilities If which of the following conditions is met?

Which of the following does not represent an acceptable method of transferring receivables to increase cash flow?

Derivative instruments acquired to hedge exposure to variability in expected future cash are _________________________ hedges.

Why can exercising stock options create cash flow problems for managers at the exercise date? What is an alternative to this problem?

The first date at which employees can exercise their stock options is termed the _________________________.

Derivative instruments acquired to hedge exposure may be classified as either a fair value hedge or a cash flow hedge.Distinguish between the two types of hedges.

There are three dates that are important to a corporation when they issue new shares of stock.Identify the three dates and explain the significance of each?

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

Assume that you are currently negotiating a lease transaction in the role of the lessee.Discuss whether you would rather structure the lease as an operating lease or a capital lease and why.In addition,provide the conditions that would require that the lease be accounted for as a capital lease.

Under the fair value method of accounting for stock options,firms must value stock options on the date of ____________________.

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

A derivative has one or more ____________________,which are a specified interest rate,commodity price,foreign exchange rate,or other variable.

Assuming that Santa Corporation was required to capitalize its operating lease,how would the company's fixed asset ratio change under this assumption?

Overview of Financial Reporting, Financial Statement Analysis, and Valuation

Asset and Liability Valuation and Income Recognition

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

Profitability Analysis

Risk Analysis

Accounting Quality

Investing Activities

Operating Activities

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