答案和详解如下： Q7. Which of the following statements regarding the capitalization of an expense is least accurate? A) Capitalizing an expense creates an asset. B) Capitalized expenses increases equity. C) Capitalizing an expense lowers current period net income. Correct answer is C) Capitalizing expenses reduces current period expenses by the amount capitalized. The amount capitalized is added to assets which increases equity by increasing net income and retained earnings in the current period. Q8. Dobkin Company decides to expense costs that it would have otherwise capitalized. Compared to capitalizing, expensing these costs will result in:
A) lower asset levels and higher equity levels. B) lower asset levels and lower equity levels. C) lower asset levels and lower liability levels. Correct answer is B) Expensing instead of capitalizing results in lower assets. Since the entire expense is recognized in the current period (whereas only a portion of the expenditure is amortized when capitalizing), net income (and therefore equity, via retained earnings) is lower with expensing than with capitalizing. Liabilities are unaffected. Q9. Selected information from Yorktown Corp.’s financial statements for the year ended December 31, 2004 was as follows (in $ millions): Accounts Payable | 8 | Long-term Debt | 9 | Common Stock | 17 | Retained Earnings | 23 | Total Liabilities & Equity | 57 |
In 2004, Yorktown paid $10 million cash to purchase a franchise. The franchise cost was fully expensed in 2004. If the company had elected to amortize the franchise cost over 5 years instead of expensing it, Yorktown’s total debt ratio (total debt-to-total capital) would: A) increase from 0.474 to 0.551. B) decrease from 0.474 to 0.403. C) decrease from 0.298 to 0.262. Correct answer is C) Total capital equals total assets which must equal total liabilities and equity. Yorktown’s total debt ratio was (($8 + $9) / $57 =) 0.298. If the franchise cost were amortized, retained earnings would be increased $8 million ($10 cost less ($10 / 5 =) $2 million of amortization.) The total debt ratio would change to (($8 + $9) / ($57 + $8) =) 0.262. Q10. Selected information from the financial statements of Salvo Company for the years ended December 31, 2003 and 2004 is as follows (in $ millions): | 2003 | 2004 | Sales | $21 | $23 | Cost of Goods Sold | (8) | (9) | Gross Profit | 13 | 14 | Cost of Franchise | (6) | 0 | Other Expenses | (6) | (6) | Net Income | $1 | $8 | | | | Cash | $4 | $5 | Accounts Receivable | 6 | 5 | Inventory | 9 | 7 | Property, Plant & Equip. (net) | 12 | 15 | Total Assets | $31 | $32 | | | | Accounts Payable | $7 | $5 | Long-term Debt | 10 | 5 | Common Stock | 8 | 8 | Retained Earnings | 6 | 14 | Total Liabilities and Equity | $31 | $32 |
Salvo’s return on average total equity for 2004 was ($8 / (($8 + $6) + ($8 + $14)) / 2 =) 44.4%. If Salvo had amortized the cost of the franchise acquired in 2003 over six years instead of expensing it, Salvo’s return on average total equity for 2004 would have decreased from 44.4% to: A) 35.6%. B) 38.9%. C) 31.1%. Correct answer is C) If the franchise cost had been amortized over six years beginning in 2003, net income in 2003 would have been $6 million instead of $1 million due to the cost of franchise expense of $6 million being eliminated and replaced by franchise amortization of $1 million. Net income in 2004 would have been reduced by the franchise amortization to $7 million instead of $8 million. On the equity side, retained earnings at the end of 2003 would have been $11 million ($5 million higher), and total equity for 2003 would have been ($8 + $11 =) $19 million. Retained earnings for 2004 would be the 2003 retained earnings of $11 million increased by 2004 net income of $7 million for a total of $18 million, and total equity for 2004 would be ($8 + $18 =) $26 million. If the franchise cost were amortized, return on total equity for 2004 would be ($7 / ((19 + 26) / 2 =) 31.1%. | 
发表于 2009-1-19 10:07
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