Final Exam Extra Credit: Top 10

Question 1

SHARE WARRANTS

HINT: Store Coupons = Certificates that let you buy products at a certain price within a stated period.

Answer 1

HINT:

Store Coupons

= Certificates that let you buy products at a certain price within a stated period.

RULE:

Share Warrants

= Certificates that let you buy shares at a certain price within a stated period.

Question 2

DIVIDENDS: TYPES

HINT: Please Leave Some Cash for my dividends!

Answer 2

HINT:

Please Leave Some Cash for my dividends!

• Property dividends
• Liquidating dividends
• Share dividends
• Cash dividends

Question 3

CURRENT RATIO

HINT: “What do you prefer: assets or liabilities?”

“I prefer assets over liabilities, because owning things makes me richer, while owing others makes me poorer!”

Answer 3

HINT:

Current Ratio = Current Assets “over” Current Liabilities

RULE:

Current Ratio = Current Assets / Current Liabilities

Question 4

EMPLOYEE-RELATED LIABILITIES: MAIN TYPES

HINT: Companies Pay Bonuses to keep their employees happy!

Answer 4

HINT:

Companies Pay Bonuses to keep their employees happy!

• Compensated absences
• Payroll deductions
• Bonuses

Question 5

GOODWILL: RECORDING RULE

HINT: “Goodwill” (i.e. kindness) from within (i.e. generated internally) should NOT be “capitalized on” (i.e. taken advantage of).

Answer 5

HINT:

“Goodwill“(i.e. kindness) from within (i.e. generated internally) should NOT be “capitalized on” (i.e. taken advantage of).

RULE:

Goodwill generated internally should NOT be capitalized.

Question 6

DEPRECIATION: CONCEPTS BEHIND METHODS

HINT:

Imagine a foot race with three different runners, each with his/her own running styles:

• Marathon runner
• Sprinter
• Finish-line runner

Answer 6

Foot race = the life of an asset

Running = process of depreciating an asset

Three running styles = three major depreciation methods:

• Marathon runner: prefers to run at a steady, controlled pace from beginning to end = Straight-line Method
• Sprinter: prefers to run as fast as possible but continually slows down due to gradual exhaustion = Diminishing-Charge/Accelerated Depreciation Method
• Finish-line runner: may run fast sometimes and slow other times but is only concerned about finishing the race = Activity Method

Question 7

IMPAIRMENT LOSS: RECOGNITION RULES

HINT:

You bought a $5 lottery ticket and won $3 back on it. It has a $2 loss on its value.

You bought a $5 lottery ticket and won $20 back on it. It has a $15 gain on its value.

Answer 7

HINT:

You bought a $5 lottery ticket (carrying amount) and won $3 back on it (recoverable amount). It has a $2 loss on its value.

Rule:

Carrying amount > Recoverable amount = Impairment loss recognized (for $2 in this example)

HINT:

You bought a $5 lottery ticket and won $20 back on it. It has a $15 gain on its value.

Rule:

Carrying amount < Recoverable amount = NO impairment loss recognized

Question 8

DEPRECIATION: METHODS

HINT: Shrek: A Scarlet Dragon Scooped up Donkey.

Answer 8

• Activity method
• Straight-line method
• Diminishing-charge methods
  
  • Sum-of-the-year’s-digits method
  • Declining-balance method

Question 9

PP&E: ACQUISITION & DISPOSITION - COMPUTATION OF AVOIDABLE INTEREST

HINT: “WAC a rat many times in order to avoid intrusion into your food.”

Answer 9

Weighted-Averaged ACcumulated Expenditure X Interest Rate = Avoidable Interest

• WAC = Weighted-Average ACcumulated Expenditure
• rat = Interest Rate
• “many times” = multiplication
• “avoid intrusion” = Avoidable Interest

Question 10

PP&E: COSTS SUBSEQUENT TO ACQUISITION - MAJOR EXPENDITURES

HINT: “Our AIR is so polluted that it needs REPAIRS!”

Answer 10

• Additions
• Improvements & Replacement
• Rearrangements & Reorganizations
• Repairs