Question 1

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 _____________________________________________.

Accepted Answer

The answer of Items, such as interest revenue on municipal...

Question 2

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

Accepted Answer

A)  biased. 
B)  credible. 
C)  verifiable. 
D)  supported by source documents.

Question 3

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

Accepted Answer

The answer of Acquisition costs includes all costs necessary to...

Question 4

Which of the following is not one of methods used by GAAP for treating value changes?

Accepted Answer

A)  Recognize value changes on the balance sheet and income statement when they are realized in a market transaction 
B)  Recognize value changes in the income statement when the value changes occur over time, but recognize them on the balance sheet when they are realized in a market transaction 
C)  Recognize value changes on the balance sheet when the value changes occur over time, but recognize them in the income statement when they are realized in a market transaction 
D)  Recognize value changes on the balance sheet and income statement when they occur over time, even though they are not realized in a market transaction

Question 5

The analytical framework used to evaluate transactions is reproduced below:
  
Using this analytical framework indicate the effect of each of the following transactions for TX Corporation:
1. TX Corporation sold additional shares of common stock for $250,000 cash.
2. At the end of the period TX Corporation revalued the securities to $125,000.
3.During the next period TX Corporation sells equipment with a book value of $100,000 for $90,000.

Accepted Answer

The answer of The analytical framework used to evaluate transactions...

Question 6

Interest on Municipal Bonds represents what kind of tax difference?

Accepted Answer

A)  Permanent timing difference that results in that income item not being taxed. 
B)  Temporary difference that will reversed in the future 
C)  Tax rate on Municipal bonds are based on estimated tax rates. 
D)  Not recognized in taxable income on the accrual basis of accounting.

Question 7

Reporting financial assets and liabilities at fair values also is referred to as:

Accepted Answer

A)  historical cost. 
B)  acquisition cost. 
C)  mark-to-market. 
D)  mortgage-backed cost

Question 8

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

Accepted Answer

The answer of Firms recognize the reduction in service potential...

Question 9

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

Accepted Answer

A)  when enacted tax rates applicable to future periods do not change. 
B)  when the firm recognizes no valuation allowance on deferred tax assets. 
C)  Both "when enacted tax rates applicable to future periods do not change" and "when the firm recognizes no valuation allowance on deferred tax assets" are correct. 
D)  None of these answers is correct.

Question 10

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 :

Accepted Answer

A)  Discontinued Operations 
B)  Extraordinary Items 
C)  Other Comprehensive Income 
D)  Common Stock

Question 11

Which of the following would not represent an acquisition cost to be added to the purchase price of building:

Accepted Answer

A)  Sales Tax. 
B)  Cost of grading the land. 
C)  Capital repairs to get the building ready for occupancy. 
D)  Renovations that would extend the life of the building.

Question 12

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.

Accepted Answer

The answer of H. Solo Company purchased a new piece...

Question 13

If a portfolio manager had to estimate the fair value of illiquid mortgage-backed securities, which of the following would he/she most likely identify as the level of inputs to determine this?

Accepted Answer

A)  Level 1. 
B)  Level 2. 
C)  Level 3. 
D)  None of these.

Question 14

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 its equipment using the following schedule: year 1- 50%, year 2 - 30%, year 3 - 15% and year 4 - 5%. In 2014 Plaxo purchases a piece of equipment with a four year life and an original cost of $100,000. What amount will Plaxo record as a deferred tax asset or liability in 2010?

Accepted Answer

A)  Deferred tax asset of $25,000. 
B)  Deferred tax liability of $25,000. 
C)  Deferred tax asset of $8,750. 
D)  Deferred tax liability of $8,750.

Question 15

The existence of subjectivity in an asset valuation does not necessarily mean the valuation will not be reliable. All of the following are examples of this except :

Accepted Answer

A)  where historical cost is used for accounts receivable, fixed assets, and other assets with values that remain relatively stable. 
B)  where market value is used for marketable equity securities, commodities, and financial assets are traded in liquid markets 
C)  where historical cost is used for LIFO inventory layers where inventory has seen an inflationary increase in costs. 
D)  where historical cost is used for internally generated intangible asset valuations.

Question 16

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?

Accepted Answer

A)  costs to run a title search 
B)  costs of grading to level the land 
C)  costs of tearing down an existing structure 
D)  cost of the new holding tanks

Question 17

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

Accepted Answer

The answer of The amount that a company would have...

Question 18

Relevant asset valuations refer to all of the following except :

Accepted Answer

A)  they are timely. 
B)  they have the capacity to affect a user's decisions, based on the information. 
C)  they incorporate all available information. 
D)  they are always subjective.

Question 19

The difference between income tax payable and income tax expense is reported on the balance sheet as either a(n) ______________________________ or a(n) _______________________________.

Accepted Answer

The answer of The difference between income tax payable and...

Question 20

Which of the following assets appears on the balance sheet at Historical cost?

Accepted Answer

A)  Equipment 
B)  Notes Payable 
C)  Investments in Marketable Securities 
D)  Accounts Payable

Exam 2: Asset and Liability Valuation and Income Recognition