FAR 5B

Question 1

Under the fair-value method of accounting for stock option plans, total compensation recognized

Answer 1

Is based on the value of the option at the grant date, adjusted for forfeitures.

Question 2

The fair value on the ________ date is used for measuring compensation expense, because, on that date, the employer has given a resource of value to the employee.

Answer 2

grant

Question 3

In a stock option plan, the estimated forfeitures rate is increased during the second year of a four-year service period. Therefore,

Answer 3

Compensation expense for year two causes total recognized compensation expense through year two to be half of total compensation expense using the new estimate.

Question 4

Hut Co. has temporary taxable differences that will reverse during the next year and add to taxable income. These differences relate to non-current assets. Deferred income taxes based on these temporary differences should be classified in Hut’s balance sheet as a

Answer 4

Non-current liability. In this case, the underlying item is non-current. Therefore, the deferred tax liability is also classified as non-current.

Question 5

Lore Co. changed from the cash basis to the accrual basis of accounting during 2005. The cumulative effect of this change should be reported in Lore’s 2005 financial statements as a…

Answer 5

Prior period adjustment resulting from the correction of an error.

Question 6

The effect of a change in accounting principle that is inseparable from the effect of a change in accounting estimate should be reported

Answer 6

As a component of income from continuing operations, in the period of change and future periods if the change affects both.

Question 7

When it is impossible to determine whether the change is an estimate or a change in accounting principle, the change should be considered…

Answer 7

a change in estimate and accounted for prospectively.

Question 8

How should the effect of a change in accounting estimate be accounted for?

Answer 8

In the period of change and future periods if the change affects both.

Question 9

What is the best description of accretion expense associated with an asset retirement obligation.

Answer 9

Growth in asset retirement obligation.