Question 1

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 affect Plaxo's income taxes in 2011.

Accepted Answer

The answer of Plaxo Corporation has a tax rate of...

Question 2

The income statement approach to measuring income tax expense:

Accepted Answer

A)  is required by FASB Statement No. 109. 
B)  compares revenues and expenses recognized for book and tax purposes, eliminates permanent differences, and computes income tax expense based on book income before taxes excluding permanent differences. 
C)  computes income tax expense as a difference between the tax basis of an asset or a liability and its reported amount in the [balance sheet] that will result in taxable or deductible amounts in some future year(s) when the reported amounts of assets are recovered and the reported amounts of liabilities are settled. 
D)  is required by IAS 12.

Question 3

If a portfolio manager had to estimate the fair value of privately placed bond issues, 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 4

Refer to Balance Sheet Equation. ORP Corporation Purchases land for $9,000 cash and 1,000 shares of common stock values at 10 per share. This transaction results in ORP recording a decrease in cash of $9,000, an increase in non-cash assets of $ 19,000, and an increase in ______________________________ of $10,000

Accepted Answer

The answer of Refer to Balance Sheet Equation. ORP Corporation...

Question 5

Stockholders' equity can be expanded into the following three accounts: Accumulated other comprehensive income, retained earnings and _________________________________________________________________.

Accepted Answer

The answer of Stockholders' equity can be expanded into the...

Question 6

Deferred tax assets and liabilities are created due to temporary differences between the tax and financial reporting basis of certain assets and liabilities. Discuss which scenarios result in a deferred tax asset and which result in deferred tax liabilities.

Accepted Answer

The answer of Deferred tax assets and liabilities are created...

Question 7

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.

Accepted Answer

The answer of Discuss the three ways in which GAAP...

Question 8

Balance Sheet Equation
  Refer to the Balance Sheet Equation . If ORP Corporation sells $25,000 of its product on account, it will see an increase in non-cash assets and ___________________________________.

Accepted Answer

The answer of Balance Sheet Equation
  Refer to the...

Question 9

Permanent tax differences are revenues and expenses:

Accepted Answer

A)  that firms include in income tax returns, but do not appear in the income statement. 
B)  that are included in both the tax return and income statement, but in different accounting periods. 
C)  that firms include in the income statement, but do not appear in income tax returns. 
D)  that are not included in either the tax return or the income statement.

Question 10

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

Accepted Answer

The answer of The amount initially paid to acquire an...

Question 11

U.S. GAAP, IFRS, and other major accounting standards are best characterized as:

Accepted Answer

A)  historical accounting models. 
B)  current value accounting models. 
C)  acquisition cost accounting models. 
D)  mixed attribute accounting models.

Question 12

Present value methods are often used with receivables and liabilities:

Accepted Answer

A)  With payment schedules in excess of one year. 
B)  With payment schedules of less than one year. 
C)  When fair values can be easily determined. 
D)  When asset are sold in the middle of the accounting cycle.

Question 13

The accounting equation is represented by Assets= Liabilities + Stockholders' Equity which of the following would cause a change in the stockholders' equity accounts:

Accepted Answer

A)  Sale of Land for cash and a note receivable for the balance 
B)  Collection of an account receivable 
C)  Purchased an asset for cash and 10,000 shares of preferred stock 
D)  Purchased inventory on account

Question 14

What level are inputs for estimating fair values based on a firm's own assumptions about the fair value of an asset or a liability, such as using various data to estimate present values?

Accepted Answer

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

Question 15

Refer to Balance Sheet Equation. JCP Company purchased marketable securities for $5,000 during the year, at the end of the year the company revalues the securities to $5,700. This revaluation would result in an increase to non-cash assets and ____________________________________________________________.

Accepted Answer

The answer of Refer to Balance Sheet Equation. JCP Company...

Question 16

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

Accepted Answer

A)  Deferred tax asset and Statement of Cash Flows 
B)  Deferred tax asset and Balance Sheet 
C)  Deferred tax liability and Statement of Cash Flows 
D)  Deferred tax liability and Balance Sheet

Question 17

If a portfolio manager had to estimate the fair value of real estate, 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 18

Discuss the two principal reasons income before taxes for financial reporting differs from taxable income.

Accepted Answer

The answer of Discuss the two principal reasons income before...

Question 19

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?

Accepted Answer

A)  Level 1. 
B)  Levels 1 and 2. 
C)  Levels 2 or 3. 
D)  All levels would be applicable.

Question 20

The analytical framework used to evaluate transactions is reproduced below:
  
Using this analytical framework indicate the effect of each of the following transactions for CX Corporation:
1. CX Corporation purchases land for $450,000 cash.
2. At the end of the period CX Corporation receives an appraisal that values the land at $540,000.
3. During the next period CX Corporation sells the land for $665,000.
4. CX pays taxes at a rate of 40%.

Accepted Answer

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

Exam 2: Asset and Liability Valuation and Income Recognition

The income statement approach to measuring income tax expense:

If a portfolio manager had to estimate the fair value of privately placed bond issues, which of the following would he/she most likely identify as the level of inputs to determine this?

Stockholders' equity can be expanded into the following three accounts: Accumulated other comprehensive income, retained earnings and _________________________________________________________________.

Deferred tax assets and liabilities are created due to temporary differences between the tax and financial reporting basis of certain assets and liabilities. Discuss which scenarios result in a deferred tax asset and which result in deferred tax liabilities.

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.

Balance Sheet Equation Refer to the Balance Sheet Equation . If ORP Corporation sells $25,000 of its product on account, it will see an increase in non-cash assets and ___________________________________.

Permanent tax differences are revenues and expenses:

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

U.S. GAAP, IFRS, and other major accounting standards are best characterized as:

Present value methods are often used with receivables and liabilities:

The accounting equation is represented by Assets= Liabilities + Stockholders' Equity which of the following would cause a change in the stockholders' equity accounts:

What level are inputs for estimating fair values based on a firm's own assumptions about the fair value of an asset or a liability, such as using various data to estimate present values?

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

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

Discuss the two principal reasons income before taxes for financial reporting differs from taxable income.

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?