MCQ Review 3

Question 1

The types of assets that qualify for interest capitalization are

Answer 1

Interest should be capitalized for (1) assets constructed or otherwise produced for an entity’s own use, including those constructed or produced by others; (2) assets intended for sale or lease that are constructed or produced as discrete projects (e.g., ships); and (3) certain equity-based investments.

Question 2

Current Liabilities

Answer 2

• Obligation that will be either liquidated using current assets or replaced by another current liability
• Current liabilities also include (1) obligations that, by their terms, are or will be due on demand within 1 year, and (2) obligations that are or will be callable by the creditor within 1 year because of a violation of a debt covenant.

Question 3

What is the effect on retained earning when stock dividend declared and issued?

Answer 3

When a stock dividend is declared, a portion of retained earnings is reclassified as contributed capital. The net effect on total equity is thus $0

Question 4

Examples of not R & D expenses

Answer 4

(1) trouble-shooting in connection with breakdowns and (2) adaptation of an existing capability to a particular customer’s needs as part of a continuing commercial activity

Question 5

Calculation of Bookvalue per C/S

Answer 5

Numerator: Total equity - Preferred stock(including dividend in arrear)
Denominator - Total C/S outstanding

Question 6

When can a creditor recognize impairment of a loan?

Answer 6

when it is probable that the creditor will not be able to collect all amounts due in accordance with the terms of the loan. All amounts include both principal and interest payments.

Question 7

How to recognize amortization of prior service cost? (defined benefit pension plan)

Answer 7

Originally recognized as a debit(decrease) to OCI on the date of plan amendment and credit to pension liability. As the prior service cost is amortized, it is reclassified from OCI to pension expense. Therefore, debit to pension expense, and credit to OCI (increase). As a result, the amortization of prior service cost increases other comprehensive income.

Question 8

The principal benefit of a single set of global financial reporting standards

Answer 8

• Increased ease of capital flow-
• The principal advantage of a single set of global financial reporting standards is that multinational companies do not have to rewrite their statements in (or perform a complex reconciliation to) the local financial reporting framework to trade their stock on the local exchange. Foreign investment is thereby made much easier, and the cost of capital is lowered

Question 9

What does the statement of shareholder’s equity show

Answer 9

-Reconciliation of the beginning and ending in shareholder’s equity accounts