Quiz 9-16 Wrong Answers

Question 0

With an interest bearing note of 10% annual interest, with the note due in 3 years, should the interest due at the end of the first years income statement be discounted by the present value of $1 at 10% for 3 periods?

Answer 0

Yes

Question 1

What is the appropriate accounting treatment for interest on construction financing incurred after completion of construction? Why?

Answer 1

Expense, the capitalization period shall end when the asset is
Substantially complete and ready for intended use

Question 2

If a non interest bearing nite due in 3 years is issued, in connection with a contract to purchase merchandise, what needs to be established?

2) why?

Answer 2

Establish a Discount on notes receivable for imputed interest

2) valuation account for effective interest method

Question 3

If a $1.5 million oil tanker with a useful life of 10 years, is being dismantled after 10 years and costs to dismantle in the 10th year are $7,000 higher than expected, what is the retirement expense recognized in the last year?

Answer 3

$15,000 amortization + $7,000 increased actual cost

Question 4

Which of the following items would be used to calculate year 2’s A/R before allowance for uncollectible accounts?

1) yr. 1 ending A/R before, 2) allowance for uncollectible accounts,
3) yr.2 credit sales minus cash collections, 4) yr. 2 A/R write offs, 5) A/R write off recoveries, 6) estimated uncollectible A/R in year 2

Answer 4

Include yr. 1 ending A/R before,

yr. 2 credit sales minus cash collections,
yr. 2 A/R write offs

Question 5

Both income tax basis and GAAP basis financial statements recognize…

Answer 5

All financial activities of a company’s business

Question 6

income tax basis vs. GAAP basis financial statements:

What differs between the 2 methods?

Answer 6

Timing of recognition of financial statement activities

Question 7

For income tax basis financial statements, taxable revenues and taxable expenses are recognized in the financial statements…

Answer 7

In the same period they are reported in the tax return

Question 8

For financial statements prepared according to GAAP, all revenues and expenses are recognized using…

Answer 8

The full accrual method of accounting

Question 9

If cash is paid for land as well as a note receivable, what is the value of the land if it equals the note balance, which has total payments of $279,000, $79,000 of which is interest? Why?

Answer 9

Amount already paid on purchase = cash + pmts - interest

Subtract interest because only principle goes toward value of land

Question 10

Note disclosure in the financial statements for pensions does not require…

Answer 10

A detailed description of the plan, including employee groups
Covered

Question 11

Estimated plan contributions for the year following the latest year
Are…

Answer 11

Required in the note section disclosures of financial statements
For pensions

Question 12

Interest expense forgiven on debt restructuring for debtor, debtors gain, what’s included?

Answer 12

Difference between interest forgiven in current year and less interest
Owed in later year should be included in debtor’s gain

Question 13

When debt is issued at a discount, interest expense over the term of debt equals cash interest paid…

Answer 13

Plus discount

Question 14

In financial statements prepared on an income tax basis, how should the nondeductible portion of expenses such as meals and entertainment be reported?

Answer 14

Included in expense category in the determination of income

Question 15

When determining net income using the income tax basis, a fair determination necessitates using the nondeductible (for taxes) portion of expenses (such as meals and entertainment) as long as they are…

Answer 15

Legitimate business expenses

Question 16

At the time of death of an insured officer or employee a gain would be recognized equal to…

Answer 16

The excess of the face amount of the policy over the cash

Surrender value at the time

Question 17

At the time of death of an insured officer or employee, what is the journal entry for recognizing the gain on the policy?

Answer 17

Cash. Xxx
Cash surrender value. Xxx
Gain from proceeds of life insurance. Xxx

Question 18

Tax position can result in…3

Answer 18

1 permanent reduction in income taxes payable

2 deferral of income taxes otherwise currently payable to future yrs

3 change in expected reliability of deferred tax assets

Question 19

5 other areas encompassed by the term “tax position”

Answer 19

1 decision not to file tax return
2 allocation or shift of income btw jurisdictions
3 characterization of income or decision to exclude reporting
Taxable income in tax return
4 decision to classify transaction, entity as tax exempt
5 entity’s status

Question 20

Tax position:

entity’s status 2 examples

Answer 20

Pass through entity

Tax exempt not for profit entity

Question 21

If a transfer of financial assets does not qualify as a sale according to the criteria in FASB 860-30-25-1, then the transfer should be accounted for as…

Answer 21

A secured borrowing with a pledge of collateral

Question 22

When a loss is estimated in year 1 on a disposal of a business segment that will be completed in year 2, what year will the loss be recognized?

Answer 22

Year 1

Question 23

Is the carrying amount of a franchise affected by an annual fee of 1% of franchise revenues?

Answer 23

No

Question 24

Enterprises often carry life insurance policies on the lives of key officers and employees. If the enterprise is the beneficiary, the cash surrender value of the policy is…

Answer 24

An asset of the enterprise

Question 25

Enterprises often carry life insurance policies on the lives of key officers and employees. If the enterprise is the beneficiary, the cash surrender value of the policy is an asset of the enterprise. The amount to be charged to expense is the…

Answer 25

Amount of such premiums paid less the increase in cash surrender
Value during the period

Question 26

Gains and losses do not result from buying and selling your…

Answer 26

Own equity shares

Question 27

No gain should be recognized on the…

2) What does this do?

Answer 27

Resale of treasury stock

2) overstates net income

Question 28

Checks written to venders in year 1, but not mailed until year 2 should be…

Answer 28

Added back to accounts payable

Question 29

Does the lessor of a capital lease record depreciation expense?

2) how does the lessor treat the asset that they leased in a capital lease?

Answer 29

No

2) the lessor removes the asset from their books

Question 30

Current income tax expense calculation?

Answer 30

Current income tax expense = Taxable income x enacted tax rate

Question 31

What does debiting paid in capital do to the account?

Answer 31

Decreases it