Multiple Choice Questions Flashcards
What is the primary protection for investors against fraudulent financial reporting by Corporations?
The requirement that financial statements be audited
What best describes the operating procedure for issuing a new financial accounting standards Board statement?
A new statement is issued only after a majority vote by the members of the FASB.
Ie. 4 out of 7
What has the FASB maintained about GAAP?
New GAAP should be neutral and not favor any particular reporting objective
A deferred revenue is what type of account.
Liability
FASB statements are no longer included in GAAP. True or false.
False
The FASB accounting standards codification presents relevant SEC guidance for publicly traded firms. True or false
True
July 1, 03 Roxy Co. obtained fire insurance @ annual premium of 72k.
Oct 1, 03 Roxy paid 24k real estate taxes to cover period ending 9/30/04.
In 12/31/03 balance sheet, report prepaid expenses of:
54k
72k.5=36k
24k.75=18k
Total 54k
Toro paid $7200 to renew only insurance policy for 3years ($200/mo) on 3/1/05 effective date. At 3/31/05 unadjusted trial balance showed $300 prepaid and $7200 ins expense.
What should be reported at 3/31/05?
$7000 prepaid ins, $500 ins expense
The $300 orig represents unexpired policy. One month or $200 used from new policy = $500. Prepaid remaining is 7200 - 200=$7000.
Company has the following accrual basis balances at the end of its first year of operation:
Unearned consulting fees 2,000
Consulting fees receivable 3,500
Consulting fee revenue 25,000
What is the company’s cash basis consulting revenue?
23,500
Cash basis revenue is the amount of cash collected for the period. 25,000 of accrual basis revenue was recognized + 2,000 in unearned fees minus the 3,500 receivable which was not collected.
Bird corp's trademark was licensed to Brian for royalties of 15% of sales. royalties are payable semi annually on 3/15 for sales July to Dec of the prior year and 9/15 for sales in Jan to June of the same year. Bird received the following royalties: 3/15/04 5k; 9/15/04 7.5k 3/15/05 6k; 9/15/05 8.5k Estimated sales $30,000 July to Dec05 Royalty Revenue for 05 should be...?
$13,000
Sept receipt $8,500 (1st half of 05) +
.15*$30,000
In financial statements prepared on the income tax basis, how should the nondeductible portion of expenses, such as meals and entertainment, be reported?
Included in the expense category in the determination of income.
Hahn Co. prepared financial statements on the cash basis of accounting. The cash basis was modified so that an accrual of income taxes was reported. Are these financial statements in accordance with the modified cash basis of accounting?
Yes.
Under a strict cash basis of accounting, revenues and expenses are recorded only when cash is received or paid. Under a modified cash basis of accounting, certain accruals and or deferrals are recorded for financial statement purposes. The most common modifications are the capitalization and amortization of long-lived assets and the accrual for income taxes
Under royalty agreement with another company, Wand company will pay royalties for the assignment of a patent for three years. When should the royalties paid be reported as an expense?
In the period incurred. The period to which specific royalty amounts relate is the period for expense recognition. Often royalty payments occur at specified intervals that do not correspond to the period in which the royalties were earned.
Doren Co’s officers compensation expense account had a balance of $490,000 at December 31, 2004 before any y/e adjustments related to the following:
Salary accrual was not made for 12/25-31, salaries totaled $18,000 and were paid January 5, 2005
Bonuses to officers for 2004 total $175,000 and were paid on 1.31.05
What is the adjusted balance for compensation expense?
$683,000 which is composed of $490,000 plus $18,000 plus $175,000
Under East co’s accounting system, all paid insurance premiums are debited to prepaid insurance. For interim financial reports, East makes monthly estimated charges to insurance expense with credits to prepaid insurance.
Prepaid ins 12/31/04 $105,000
Charges to ins exp in 2005 $437,500 incl. $17,500 y/e adjustment
Prepaid ins 12/31/05 $122,500
What was total amount of premiums paid during 2005?
$455,000
Beg balance + premiums pd - expense charges = end balance
105,000 + prem paid - 437,500 = 122,500
What is the general rule to convert from cash basis to accrual basis?
It is to add the beginning liability balances and subtract the ending liability balances; also, subtract beginning asset balances and add ending asset balances.
Sanni Co. had $150,000 in cash basis pretax income for the year. At the current year end, Accounts Receivable decreased by $20,000 and accounts payable increased by $16,000 from the previous year. How much higher or lower is the cash basis from accrual basis?
Higher by $36,000
The $20,000 AR ⬇️ implies that cash received on acct was 20,000 ⬆️ than accrual sales. Cash basis income I s therefore $20,000 greater than accrual income for this difference. The $16,000 accounts payable ⬆️ implies that more inventory was purchased and included in accrual cost of goods sold than was paid. Cash basis income is therefore 16,000 more than accrual income. For a total of $36,000 more than accrual income.
An analysis of thrift corporations unadjusted prepaid expense account at 12/31/04 revealed the following:
Thrift had a beginning balance of $1500 for it’s insurance policy. They had paid an annual premium of $3000 on July 1, 2003. A $3,200 annual insurance premium payment made 7/1/04 was unadjusted. A $2,000 advance rental payment for a warehouse lease for one year beginning in 2005 was included. What amount should Thrift report as prepaid expenses on it’s 2004 balance sheet?
$3,600
Beg Bal $1,500
- amort no longer prepaid ($1,500)
+ 1/2 of 3,200 pmt 1,600
+ warehouse pmt 2,000
= 3,600
Accounting records maintained on cash basis but restated to accrual for financial statements to. Class had $60,000 in cash basis pretax income for 2002. The following information pertains to class operations for the years ended December 31, 2002 and 2001:
A/R 40,000; 20,000
A/P 15,000; 30,000
Under the accrual method what amount of income before taxes should be reported in the 2002 income statement?
$95,000
60k plus 20k plus 15k
20 represents sales not collected
15 represents add back excess pmts
On November 1, 2005 Key company paid $3600 to renew its insurance policy for three years. At December 31, 2005 keys unadjusted trial balance showed a balance of $90 for prepaid and $4410 for insurance expense. What amount should be reported for prepaid insurance and insurance expense in keys December 31, 2005 financial statements?
Prepaid $3,400; ins exp $1,100
PPins at y/e is $3,400 from new policy
Ins exp incl. $90 PP expired, $200 from new policy, & expense portion of $4,410 expense amount. (4,410-3,600)
90+200+810=1,100
Collection of a note receivable for a related party would be what kind of activity in a company’s statement of cash flow’s?
Investing
What would be the balance sheet classification of treasury stock?
Contra equity
What would be the balance sheet classification of accounts payable or notes payable, due in nine months?
Current liabilities
What would be the balance sheet classification of allowance for uncollectible accounts?
Contra asset
What would be the balance sheet classification for sales discounts or cost of goods sold?
N/A. Not a balance sheet account
What would be the income statement classification of sales discounts?
Contra revenue
What would be the income statement classification of cost of goods sold?
Expense
GAAP assumes that most financial statement users are experts such as stock analysts. True or false
False
Yes or no. Is the primary focus of financial accounting information on assisting the evaluation of past performance rather than on assisting users to assess the future prospects of a firm?
No
Which of the conceptual framework characteristics relates to both accounting relevance and faithful representation?
Comparability
According to the conceptual framework, the quality of information that helps users increase the likelihood of correctly forecasting the outcome of past or present events is called what?
Predictive value
During the period when an enterprise is under the direction of a particular management, it’s financial statements will directly provide information about what?
Enterprise performance but not directly provide information about management performance
What are the primary characteristics of the conceptual framework?
Relevance and faithful representation
What are the three components of faithful representation?
Completeness, neutrality, and free from material error
What are the four enhancing characteristics of the conceptual framework?
Comparability, verifiability, timeliness, understandability.
On 12/31/02 Brooks co. decided to end operations and dispose of its assets within 3 months. At 12/31/02 the net realizable value of the equipment was below historical cost. What is the appropriate measurement basis for equipment included in the 2002 balance sheet?
Net realizable value.
When a firm is in liquidation historical cost or replacement cost are no longer relevant.
Ande Co. estimates uncollectible accounts expense using the ratio of past actual losses from uncollectible accounts to past net credit sales, adjusted for anticipated conditions. The practice follows which accounting concept?
Matching
According to FASB conceptual framework, certain assets are reported in financial statements at the amount of cash or equivalent that would have to be paid if the same or equivalent assets were acquired currently. What is the name of the reporting concept?
Replacement cost
What is the underlying concept governing the generally accepted accounting principles pertaining to recording gain contingencies?
Conservatism
Gain contingencies are not recognized but loss contingencies that are probable and estimable are.
When a parent-subsidiary relationship exists, consolidated financial statements are prepared in recognition of which accounting concept?
Economic entity.
Consolidated financial statements are an example of trying to account for the economic entity that comprises more than one legal entity.
Peabody co. purchased an investment for $400,000 that represented 30% of Newman corps outstanding voting stock. Newman reported net income of $60,000 and paid dividends of $20,000. At y/e the fair value of Peabody’s investment in Newman was $410,000. Peabody elected the fair value option for this investment. What amount should Peabody recognize as net income attributable to the investment?
$16,000
it should recognize its share of cash dividends received during the period (30% * $20,000 = $6000) and the increase in the fair value of the investment $10,000
What is the fair value for an asset or liability measured as?
It is measured as the price that would be received when selling an asset or paid when transferring a liability in an orderly transaction between market participants; that is, fair value is measured as an exit price
True or false property plant and equipment may be measured and reported using fair value
False
Alphaco has two subsidiaries, Betaco & Charlieco, both of which are consolidated by Alpha. Alpha and beta have elected to measure their respective investments held to maturity at fair value. Charlie measures it’s investments held to maturity using amortized cost. In it’s consolidated financial statements, for which companies, if any, may Alpha elect to report investment held to maturity at fair value?
Alpha, Beta, Charlie.
As the parent alpha may elect to report all of the investments at fair value in it’s consolidated statements whether or not the fair value option was elected by the subsidiaries
True or false. One role of the trustees of the IFRS foundation is to appoint the members of the IASB and establish their contracts of service and performance criteria.
True
The SEC is comprised of five commissioners, appointed by the president of the United States, and four divisions. Which division is responsible for overseeing compliance with the securities acts?
Division of corporate finance
What is the current ratio formula?
Current assets divided by current liabilities
What is the formula for the quick or acid test ratio?
(Cash plus or minus short-term investments plus or minus AR) divided by current liabilities
How are retained earnings calculated?
Ending Retained earnings equals revenue - expenses - income taxes = net income + beg retained earnings
Should interest be included in general and administrative expenses?
No interest is identified with specific financing activities.
Should advertising be included in general administrative expenses?
No advertising is identified with specific promotional activities i.e. selling expenses
Out of the following accounts which ones should be reported as general administrative expenses?
Accounting and legal fees freight in freight out Officer salaries Insurance Sales representatives salaries
Accounting and legal, officers salaries, and insurance
Which of the following accounts are included in selling expenses?
Accounting and legal fees Advertising Freight out Interest Loss on the sale of long-term investments Officers salaries Rent for office space Sales salaries and commissions
Advertising, freight out, rent for office space, and sales salaries and commissions
How is cost of goods manufactured computed?
Cost of goods manufactured
+ finished goods beginning inventory
- finished goods ending inventory
= cost of sales
Or cost of goods manufactured = cost of sales + finished EI - finished BI
How should donated assets be valued on the books?
Fair value
According to the FASB Accounting Standards Codification, the financial statements of a not-for-profit entity focus on:
A. the entity as a whole.
B. standardization of funds nomenclature.
C. inherent differences of not-for-profit entities that impact reporting presentations.
D. distinctions between current fund and noncurrent fund presentations.
A. the entity as a whole
When is warranty expense recognized?
In the year that the warranted item is sold
Derivative A, a fair value hedge, and Derivative B, a cash value hedge, both experience gains. Which of the above are included in net income?
Choices: A, B, or both
Derivative A.
Note: Gain/loss from cash value hedges are in OCI
A nongovernmental not-for-profit entity borrowed $5k to purchase a truck. In the org’s stmt of cash flows the transaction should be reported in:
A. cash inflow and cash outflow from investing
B. cash inflow and cash outflow from financing
C. cash inflow from financing & cash outflow from investing
D. cash inflow from operating & cash outflow from investing
C. inflow from financing, outflow from investing
When valuing ending inventory on a balance sheet and cost of goods sold on an income statement, U.S. GAAP allows for the use of the LIFO, FIFO, and the average cost flow assumptions. IFRS allows the use of which of the following?
LIFO
FIFO
Average cost flow
Only FIFO and Average Cost Flow
What are the seven key components if the general purpose external financial report?
- Income stmt
- Balance sheet
- Statement of cash flows
- Statement of retained earnings
- Statement of comprehensive income
- Footnote disclosures
- Auditors opinion
Are accrued expenses an asset or liability?
Liability
Are prepaid expenses an asset or liability?
Asset
Are unearned revenues an asset or liability?
Liability
Which financial statement would an investor use to assess the company’s liquidity and financial flexibility?
Balance sheet
On 2/12/05 VIP purchased the copyright to a book for $15k and agreed to pay royalties = to 10% sales with guaranteed minimum royalty of $60k. VIP had sales of $800k in 2005. In its 2005 income statement, what amount should VIP report as royalty expense?
$80,000 bc the cost of copyright is not relevant to the royalty computation
What does it mean when accounts receivable decreases?
More cash was collected than what was recorded as sales.
What is the general rule to convert from cash to accrual basis?
The general rule is to add the beginning liability balances and subtract the ending liability balances; also, subtract beginning asset balances and add ending asset balances
A company has the following accrual basis balances at the end oh the year:
Unearned consulting fees 2k
Consulting fees receivable 3.5k
Consulting fee revenue 25k
What is the company’s cash basis consulting revenue?
$23,500
25+2-3.5
What are the major purposes intended to be accomplished by the fair value framework?
To achieve increased consistency and comparability and expand disclosure
Define fair value for accounting purposes
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
What does Regulation S-X govern?
The firm and content of financial statements and financial statement disclosures including income stmt, balance sheet, changes in shareholders equity, cash flow statement, footnotes to financial statements, and qualification of accountants (independence rules).
What does Regulation S-K govern?
The form and content of non-financial statement closures in the 10-K.
A) descr of the business
B) descr of stockholder matters
C) mgmt discussion & analysis (MD&A)
D) changes in/disagreements w acct’ts
E) information in directors and management
Define public accountability according to IFRS and IFRS for SME.
Entity files or is in process of filing financials for purpose of issuing instruments in public market and entity holds assets in a fiduciary capacity for a broad group of outsiders
What 4 items are included in Other Comprehensive Income (OCI)?
Foreign currency translation adjustments
Unrealized holding gains/losses on avail for sale securities
Pension & other post retirement adjustments
Certain deferred derivative gains/losses
What is the formula for accounting income?
Revenues less expenses plus gains less losses
What type of income measure is a gain on disposal of plant asset?
Income from continuous operations (IFCO)
What type of income measure is unearned revenue?
None of the above
Above meaning income from continuous operations, income other than IFCO, OCI other comprehensive income, and owners equity other than the above three measures.
What type of income measure is cumulative effect of change from LIFO to FIFO?
Owners equity other than IFCO, income other than IFCO, and OCI
What type of income measure is unrealized loss on investment in trading securities?
Income from continuous operations (IFCO)
What type of income measure is realized gain on investment in securities available for sale?
Income from continuous operations
IFCO
What type of income measure is unrealized loss on investment in securities available for sale?
Other comprehensive income also known as OCI
What type of income measure is cumulative effect of change from FIFO to LIFO?
Owners equity other than IFCO, income other than IFCO, and OCI
What type of income measure is effect of change in estimate of useful life for a plant asset?
IFCO
What type of income measure is estimated disposal loss on discontinued component for which operations and cash flows can be distinguished from the rest of the entity for operational and financial reporting purposes?
Income other than IFCO
What type of income measure is deferred tax liability?
None of above. Meaning not IFCO, income other than IFCO, OCI, or other owners equity.
What type of income measure is increase in unrealized pension cost?
Other comprehensive income also known as OCI
What type of income measure is income tax expense?
IFCO
What type of income measure is restructuring charge?
IFCO
What type of income measure is loss from effect of a new regulation or law?
Income other than IFCO
What type of income measure is increase in income tax due to extraordinary gain?
Income other than IFCO
What type of income measure is stock dividend distributed?
Other owners equity
What type of income measure is accumulate other comprehensive income?
Other owners equity.
What type of income measure is dividends received on investment in securities available for sale?
IFCO
What type of income measure is dividends received on equity method investment?
None of the above meaning not IFCO, income other than IFCO, OCI, and other owners equity.
What type of account is accumulated other comprehensive income (AOCI)?
An owners equity account.
What account is net income closed out to?
Retained earnings
What account is other comprehensive income closed out to?
Accumulated other comprehensive income (AOCI)
Is a debit balance a gain or a loss on accumulated other comprehensive income?
A loss
The statement of changes in equity shows an increase in the common stock account of $2,000 and an increase in the additional paid in capital account of $10,000. If the common stock has a par value of $2 and the only transactions affecting these accounts were these issues of common stock, what was the average price of the common stock during the year?
$12.
Par = $2
Common stock $2,000/$2=1,000 shares
Paid capital $10,000/1,000 shares=$10
$2+$10=$12 avg price
What type of activity are dividends paid to shareholders?
Financing activity
What type of activity is the payment of interest on bonds?
Operating activity
What type of activity is payments to acquire shares of another company stock?
Investing activity
Payments to suppliers, interest payments, purchase of trading securities, dividends received, and payments to fund company pension plan are what type of cash flows?
Operating cash flow’s
Payments to retire bonds outstanding, obtain loan to purchase land, and purchase of treasury stock are what type of cash flow?
Financing cash flow
Down payments on purchasing equipment and proceeds from sale of securities available for sale are what type of cash flow?
Investing cash flow
Are depreciation expense, losses on disposal of equipment, and increases in Accounts Receivable cash flows?
No they are not cash flows
What type of cash flows are monthly mortgage payments and annual lease payments on capital leases?
Operating cash flow and financing cash flow
True or false. IFRS footnote requirements require a statement that the financial statements are in compliance with IFRS.
True
What is a basic equation to get from bank statement balance to cash balance in the books?
Balance per bank statement + deposits in transit - outstanding checks
List the adjustments made to book balance to arrive at the bank balance
Interest earned Note collected Service charges NSF checks Errors in company records
List the adjustments made to a bank balance to arrive at book income.
Deposits in transit
Cash on hand
Outstanding checks
Bank errors
True or false. If material amounts of cash discounts are expected to be forfeited by customers next year in sales of the current year, they should be recorded in an adjusting journal entry under the net method.
False
True or false. Allowance fir sales discounts is contra to accounts receivable.
True
True or false. The sales price of an item before trade and cash discounts is $59. A trade discount of 2% is available as well as a 4% cash discount. An allowance of $8 (based on $50 price) is granted and payment remitted before the cash discount period ended. The amount remitted is $39.51.
True.
$50-$8=$42 price * .98 * .96 = $39.51
True or false. The entry to write off an account under the direct write off method will have no effect on net income.
False.
When using the allowance method for uncollectible accounts what impact does the write off have on net income and total assets?
No effect on either because the estimated uncollectible is recognized at time of sale; therefore when account is written off the allowance and accounts receivable are both reduced with no effect on income stmt or balance sheet.
What is the entry to write off uncollectible accounts under the allowance method?
Debit allowance for uncollectible acct
Credit acct receivable
Which decreases both accounts.
True or false. The balance in the “factor’s holdback” or due from factor is reported as an expense of the period.
False. It’s a receivable and current asset
True or false. In a specific assignment of receivables, collections on the assigned accounts are generally remitted to the assignor.
True
True or false. Factors are banks or finance companies that purchase receivables for a fee and then collect the remittances directly from the selling company.
False. The factor usually collects remittances from the customer.
What is the accounting treatment when factoring with recourse, as accounted for as a loan?
The transferor maintains the receivables on its books and records a loan and interest expense over the term of the agreement
What is the accounting treatment when factoring with recourse, as accounted for as a sale?
The entries are similar to factoring without recourse except that the transferor must estimate and record a recourse liability.
The company decided to change it’s inventory valuation method from FIFO to LIFO in a period of rising prices. What was the result of the change on ending inventory and net income in the year of the change?
Decrease ending inventory and decrease net income
True or false. LIFO always produces the lowest net income.
False
True or false. A firm selling a highly perishable good must use FIFO.
False
True or false. If inventory costs have been rising, LIFO shows lower ending inventory, higher cost of goods sold, and lower income.
True
Which inventory costing method would a company that wished to maximize profits in a period of rising prices use?
FIFO. Because FIFO assumes sake of earliest goods first. With rising prices the earliest good reflect the lowest prices. Therefore COGS under FIFO is the lowest cost flow assumption. Which means gross margin and income are the highest.
True or false. Cost is less than replacement cost but more than net realizable value. Therefore the inventory item should be valued at cost.
False
True or false. Under LCM, market value can never be less than net realizable value less normal profit margin.
True.
True or false. When inventory is written down to market because of LCM, the overall effect on net income is less than if the inventory was not written down.
False
What is the average LCM retail method?
The cost ratio includes beginning inventory along with current period purchases in both the numerator and the denominator but excludes net markdowns from the cost ratio calculation.
True or false. The gross margin method uses historical sales margins to estimate the cost of inventory.
True
Two or false. The dollar value of LIFO method preserves old inventory costs by charging current costs to cost of goods sold.
True
True or false. Inventory should be reported at the lower of cost or market and it may be based on the values of individual items, categories, or the total inventory.
True
True or false. A loss on a purchase commitment should be recorded when the contract price is greater than the market and it is anticipated that a loss will occur when the contract is completed.
True
True or false. Under the dollar value LIFO method, increases and decreases in a layer would be measured based upon the change in the total dollar value of the layer.
True
True or false. The link chain method uses a cumulative Index to value the base cost of ending inventory.
True
True or false. the price index for dollar value LIFO is a measure of changes in price levels between the current year and the base year
True
True or false. A holding gain results from holding an item while the market value experiences a decline.
False
True or false. During a period of rising prices, the LIFO cost flow assumption results in a higher net income as compared to FIFO
False
True or false. In a period of rising prices, when a company changes from FIFO to LIFO the net income will tend to decline as will working capital.
True
True or false. The use of LIFO for book and tax purposes will result in a lower tax payment in a period of rising prices.
True
True or false. Under the LIFO method, the cost of goods sold balance would be the same whether a perpetual or periodic inventory system is used.
False
Which method results in a higher net income during a period of rising prices?
FIFO
Which method most closely matches the physical flow of inventory?
FIFO
Which method results in the lowest ending inventory in a period of rising prices?
LIFO
Which method uses a price index to measure changes in inventory?
Dollar value LIFO
Which method if used for tax purposes must also be used for financial reporting purposes?
LIFO
The cost of good sold balance is the same whether perpetual or periodic inventory system is used for which method?
FIFO
True or false. A firm can be both an investor and an investor for the same security.
False
True or false. Stock options held are equity securities for investment accounting purposes.
True
True or false. Investment in between 20% and 50% of the voting common stock of an entity assures the investor of having significant influence over the investee.
False
How is a permanent decline in the value of an available for sale security recognized?
As a loss in the income statement.
True or false. Definite life intangibles and goodwill are amortized.
False
True or false. The cost to acquire a patent from another party is expensed immediately as a research and development expense.
False
True or false. The cost to acquire an intangible from another party is generally capitalized.
True
True or false. A firm leases a warehouse for 10 years beginning January 1, 1997. On January 1, 1998 the firm completes improvements to the warehouse. The improvements have a useful life of 20 years. The leasehold improvements will be amortized over nine years.
True
True or false. The cash surrender value of a life insurance policy is $400 at the beginning of the current year, and $700 at the end of the current year. The annual insurance premium is $1000. Insurance expense for the year is $700.
True
True or false. A development stage enterprise is exempt from most generally accepted accounting principles.
False
True or false. A copyright is most likely a definite life intangible.
True
True or false. Goodwill is not amortized nor is it subject to impairment.
False. It is not amortized but is tested for impairment.
True or false. Goodwill is the only unidentifiable asset that can be capitalized.
True.
True or false. The employer records only its share of FICA as a payroll tax expense.
True
True or false. Employee paycheck withholdings are recorded as payroll taxes.
False
True or false. A bonus that is based on income after tax need not be considered when computing the amount of tax.
False.
True or false. State income tax withholding is not an employee payroll tax.
True
True or false. Cost is 80% of selling price. Under the installment method, for each $1 of cash collected, $.20 of gross profit is recognized.
True
What is the formula for annual benefit payment for a defined benefit plan?
(Years of service/40)x(final or highest annual salary)x(age at retirement/65)
True or false. Service cost and interest cost always increase pension expense.
True
True or false. Expected return on plant assets always reduces pension expense.
True
True or false. Amortization of prior service cost never increases pension expense.
False. It almost always increases pension expense.
True or false. Amortization of net gain or loss always increases pension expense.
False.
Decreases pension expense for gains
Increases pension expense for losses
True or false. Amortization of net pension gain at January 1 for a calendar-fiscal year firm increases net income for the year and decreases accumulated other comprehensive income.
True
True or false. A firm has always funded its pension expense fully. This means the firm has no balance sheet liability account.
False
True or false. Delayed recognition means that prior service cost and actuarial gains and losses are not recognized in any form until they are included in pension expense.
false
True or false. The recognition of prior service cost increases net pension liability because prior service cost is an immediate increase in PBO.
True
true or false. Amortization of prior service cost causes the PSC-OCI account to be debited.
false
true or false. the journal entry to recognize prior service cost includes a credit to pension liability
true
true or false. When a sponsoring firm uses a trustee, the sponsoring firm records a journal entry when retiree benefits are paid.
false
true or false. When actual and expected return are the same for a period, the return on asset component of pension expense reduces pension liability because assets are increased.
true.
true or false. Bond issue costs are treated as a reduction of the proceeds on the bond.
False
What effect does discount amortization have on the carrying value of a bond?
Increases carrying value of the bond by decreasing the discount.
True or false. Under international accounting standards, bond issue costs increase the discount on the bond issue.
True
