ACG 4111 FINAL

Question 1

Sale of land.

Answer 1

I+

Question 2

Issuance of common stock for cash.

Answer 2

F+

Question 3

Purchase of treasury stock.

Answer 3

F-

Question 4

Conversion of bonds payable to common stock.

Answer 4

Noncash

Question 5

Lease of Equipment

Answer 5

Noncash

Question 6

Sales of Patent

Answer 6

I+

Question 7

Acquisition of building for cash.

Answer 7

I-

Question 8

Issuance of common stock for land.

Answer 8

Noncash

Question 9

Collection of note receivable (principal amount).

Answer 9

I+

Question 10

Issuance of bonds.

Answer 10

F+

Question 11

Issuance of stock dividend.

Answer 11

X

Question 12

Payment of property dividend.

Answer 12

Noncash

Question 13

Payment of cash dividends.

Answer 13

F-

Question 14

Issuance of short-term note payable for cash.

Answer 14

F+

Question 15

Issuance of long-term note payable for cash.

Answer 15

F+

Question 16

Purchase of marketable securities (“available for sale”).

Answer 16

I-

Question 17

Payment of Note Payable

Answer 17

I-

Question 18

Cash Payment for 5 year insurance policy

Answer 18

I-

Question 19

Revenue Reported In Statements Before Return

Answer 19

DTL

Question 20

Revenue Reported In Tax Return Before Statement

Answer 20

DTA

Question 21

Expenses Reported In Statement Before Return

Answer 21

DTA

Question 22

Expenses Reported In Return Before Statement

Answer 22

DTL

Question 23

Payment of note payable.

Answer 23

F-

Question 24

Cash payment for five-year insurance policy.

Answer 24

X

Question 25

Sale of equipment.

Answer 25

I+

Question 26

Issuance of note payable for equipment

Answer 26

N

Question 27

Acquisition of common stock of another corporation.

Answer 27

I-

Question 28

Repayment of Long Term debt by issuing common stock

Answer 28

N

Question 29

Payment of semiannual interest on bonds payable.

Answer 29

x

Question 30

Retirement of preferred stock.

Answer 30

F-

Question 31

Loan to another firm.

Answer 31

I-

Question 32

Sale of inventory to customers.

Answer 32

X

Question 33

Purchase of marketable securities (cash equivalents).

Answer 33

X

Question 34

Accrual of loss contingency, tax-deductible when paid.

Answer 34

Liability - Loss Contingency

Question 35

Newspaper subscriptions; taxable when received, recognized for financial reporting when the performance obligation is satisfied

Answer 35

Liability—deferred subscription revenue

Question 36

Prepaid rent, tax-deductible when paid.

Answer 36

Prepaid Rent

Question 37

Accrued bond interest expense, tax-deductible when paid.

Answer 37

Accrued bond interest payable

Question 38

Prepaid insurance, tax-deductible when paid.

Answer 38

Prepaid Insurance

Question 39

Unrealized loss from recording investments at fair value (tax-deductible when investments are sold).

Answer 39

Unrealized Loss on investments

Question 40

Warranty expense; estimated for financial reporting when products are sold; deducted for tax purposes when paid.

Answer 40

Warranty liability

Question 41

Advance rent receipts on an operating lease (as the lessor), taxable when received.

Answer 41

Liability - Deferred Rent Revenue

Question 42

Straight-line depreciation for financial reporting; accelerated depreciation for tax purposes.

Answer 42

Acc. Depreciation and depreciable assets

Question 43

Accrued expense for employee post-retirement benefits, tax-deductible when subsequent payments are made.

Answer 43

Liability - post-retirement benefits

Question 44

Advance payments on insurance, tax-deductible when paid.

Answer 44

DTL

Question 45

Estimated warranty costs; tax-deductible when paid.

Answer 45

DTA

Question 46

Rent revenue collected in advance; cash basis for tax purposes.

Answer 46

DTA

Question 47

Interest received from investments in municipal bonds.

Answer 47

N

Question 48

Prepaid expenses, tax-deductible when paid.

Answer 48

DTL

Question 49

Net operating loss carryforward.

Answer 49

DTA

Question 50

Net operating loss carryback.

Answer 50

N

Question 51

Straight-line depreciation for financial reporting; MACRS for tax purposes.

Answer 51

DTL

Question 52

Organization costs expensed when incurred; tax-deductible over 15 years.

Answer 52

DTA

Question 53

Life insurance proceeds received upon the death of the company president.

Answer 53

N

Question 54

Valuation Allowance

Answer 54

Deferred tax asset is reduced by a valuation allowance if it is “more likely than not” that some portion or all of the deferred tax asset will not be realized.
Income Tax Expense 3
Valuation Allowance DTA 3

Question 55

Dealing With Uncertainty

Answer 55

Step 1. A tax benefit may be reflected in the financial statements only if it is “more likely than not” that the company will be able to sustain the tax return position, based on its technical merits.
Step 2. A tax benefit should be measured as the largest amount of benefit that is “cumulatively greater than 50 percent likely to be realized”
-For the Step 1 decision as to whether the position can be sustained, companies must assume that the position will be reviewed by the IRS or other taxing authority and litigated to the “highest court possible,” and that the taxing authority has knowledge of all relevant facts.

Question 56

When it is “Not More Likely Than Not”

Answer 56

There is an 8 million tax benefit that would reduce tax payable by $8 million. It is more likely than not that it will not be accepted by the IRS.
Would record (a) current income tax payable that reflects the entire $8 million benefit of the deduction, (b) an additional tax liability that represents the obligation to pay an additional $8 million of taxes under the assumption that the deduction ultimately will not be upheld, and (c) tax expense as if the deduction had never been taken.

Income Tax expense (To Balance) 32
Income Tax Payable (With $8 tax Benefit) 24
Liability - Projected addt’l tax 8

Question 57

Resolution of uncertainty (Full 8 Million is disallowed)

Answer 57

Liability- Projected Addt’l tax 8

Tax Payable 8

Question 58

Resolution of Uncertainty (8 Million is allowed)

Answer 58

Liability- Projected Addt’l tax 8

Income Tax Expense 8

Question 59

AOCI Includes:

Answer 59

1. Net holding gains (losses) on available-for-sale investments in debt securities
2. Gains (losses) from and amendments to postretirement benefit plans
3. Deferred gains (losses) on derivatives
4. Adjustments from foreign currency translation

Question 60

IFRS Shareholder’s equity

Answer 60

Share Capital:
	Ordinary Shares
	Preference Shares
	Share Premium, Ordinary Shares
	Share Premium, Preference Shares
Reserves:
	Investment revaluation reserve
	Translation reserve
	Revaluation Reserve
	Retained Earnings
Total Equity:
	Often presented before liabilities

Question 61

Fundamental Share Rights

Answer 61

1. Right to vote
2. Right to share in profits in the form of dividends
3. Right to share in distribution of assets when liquidated
4. Preemptive right

Question 62

IFRS Preference Shares

Answer 62

Under IFRS, most non-mandatorily redeemable preferred stock (preference shares) also is reported as debt as well as some preference shares that aren’t redeemable. Under IFRS (IAS No. 32), the critical feature that distinguishes a liability is if the issuer is or can be required to deliver cash (or another financial instrument) to the holder.

Question 63

Preferred Stock

Answer 63

Arrears
Redemption privileges, rights of conversion
Preference in liquidation
- Mandatorily redeemable shares are classified as liabilities.

Question 64

Shares Issued for Noncash Consideration:

Answer 64

• Even without a receipt of cash to establish the fair value of the shares at the time of the exchange, the transaction still should be recorded at fair value. Best evidence of fair value might be one or more of the following:
  o A quoted market price for the shares
  o A selling price established in a recent issue of shares for cash
  o The amount of cash that would have been paid in a cash purchase of the asset or service
  o An independent appraisal of the value of the asset received
  o Other available evidence

Question 65

Stock Dividends

Answer 65

distribution of addt’l shares of stock to current stockholders. Small stock dividend is typically less than 25% and the fair value of the additional shares distributed is transferred from retained earnings to paid-in capital.
RE 120
Common Stock 10
Paid-In Capital - Excess 110

Question 66

Stock Splits

Answer 66

Stock Distribution over 25%, no entry

Question 67

Large stock Dividends

Answer 67

PIC - Excess 100

Common Stock 100

Question 68

Increase in the fair value of available-for-sale debt securities

Answer 68

OCI

Question 69

Gain on sale of land

Answer 69

NI

Question 70

Loss on pension plan assets (actual return less than expected)

Answer 70

OCI

Question 71

Adjustment for foreign currency translation

Answer 71

OCI

Question 72

Increase in the fair value of investments in common stock securities

Answer 72

NI

Question 73

Loss from revising an assumption related to a pension plan

Answer 73

OCI

Question 74

Loss on sale of patent

Answer 74

NI

Question 75

Prior service cost in defined benefit pension plan

Answer 75

OCI

Question 76

Increase in the fair value of bonds outstanding due to change in general interest rates; fair value option

Answer 76

NI

Question 77

Gain on postretirement plan assets (actual return more than expected)

Answer 77

OCI