Question 56

Fred Company has a deferred tax liability of $1,200,000. If Fred's tax rate increases from 30% to 40%, the company will increase its deferred tax liability to reflect the change in the tax rate, and will also increase its:

A)    income tax expense by $120,000.

B)   taxes payable by $400,000.

C)   income tax expense by $400,000.

D)   taxes payable by $120,000.

Question 57

Arlington, Inc. uses the first in, first out (FIFO) inventory cost flow assumption. Beginning inventory and purchases of refrigerated containers for Arlington were as follows:

In November, Arlington sold 35 refrigerated containers to Johnson Company. What is the cost of goods sold assigned to the 35 sold containers?

A)    $485,000.

B)   $434,583.

C)   $382,500.

D)   $416,667.

Question 58

Balance sheet data for Roland Corp. for the year ended December 31, 20X2 was as follows (in $):

• Net income for Roland for 20X2 was $120,000.

• Roland acquired a franchise at the beginning of 20X1 at a cost of $875,000, which was being amortized over a five-year period.

Ignoring income taxes, if the franchise cost had been expensed in 20X1 instead of being amortized, Roland's return on total assets at year-end 20X2 would be closest to:

A)    22.1%.

B)   14.8%.

C)   36.4%.

D)   58.0%.

Question 59

Which of the following pairs of general categories are least likely to be considered in the formulas used by credit rating agencies to determine the capacity of a borrower to repay a debt?

A)    Margin stability; availability of collateral.

B)   Scale and diversification; leverage.

C)   Operational efficiency; leverage.

D)   Margin stability; scale and diversification.

Question 60

On December 31, Modern Company issued 1,000 10-year, $1,000 face value, 8% coupon bonds to yield 7%. The bonds pay interest semiannually. On its balance sheet Modern should record bonds payable of:

A)    $1,062,053.

B)   $937,947.

C)   $1,071,062.

D)   $1,000,000.

[此贴子已经被作者于2008-11-8 14:06:54编辑过]

Question 56

Fred Company has a deferred tax liability of $1,200,000. If Fred's tax rate increases from 30% to 40%, the company will increase its deferred tax liability to reflect the change in the tax rate, and will also increase its:

A)    income tax expense by $120,000.

B)   taxes payable by $400,000.

C)   income tax expense by $400,000.

D)   taxes payable by $120,000.

The correct answer was C) income tax expense by $400,000.

The change in Fred’s rates causes its deferred tax liability to increase ((40 – 30) / 30) × $1,200,000 = $400,000. This is reported on the income statement as an increase in current income tax expense.

This question tested from Session 9, Reading 38, LOS g

Question 57

Arlington, Inc. uses the first in, first out (FIFO) inventory cost flow assumption. Beginning inventory and purchases of refrigerated containers for Arlington were as follows:

In November, Arlington sold 35 refrigerated containers to Johnson Company. What is the cost of goods sold assigned to the 35 sold containers?

A)    $485,000.

B)   $434,583.

C)   $382,500.

D)   $416,667.

The correct answer was C) $382,500.

Under FIFO, cost of goods sold is the value of the first units purchased. The 35 units sold consist of the 20 units in beginning inventory, the 10 units purchased in April, and 5 of the units purchased in July. COGS = $200,000 + $120,000 + (5 × $12,500) = $382,500.

This question tested from Session 9, Reading 35, LOS a

Question 58

Balance sheet data for Roland Corp. for the year ended December 31, 20X2 was as follows (in $):

• Net income for Roland for 20X2 was $120,000.

• Roland acquired a franchise at the beginning of 20X1 at a cost of $875,000, which was being amortized over a five-year period.

Ignoring income taxes, if the franchise cost had been expensed in 20X1 instead of being amortized, Roland's return on total assets at year-end 20X2 would be closest to:

A)    22.1%.

B)   14.8%.

C)   36.4%.

D)   58.0%.

The correct answer was C) 36.4%.

Had Roland expensed the cost of the franchise acquisition in 20X1, no amortization would have affected net income in 20X2, and 20X2 net income would be $875,000 / 5 = $175,000 higher. The franchise would not appear as an asset on the balance sheet, so total assets would be $100,000 + $300,000 + $150,000 + $260,000 = $810,000. Return on total assets, which was $120,000 / $1,335,000 = 9.0% on the original statement, would increase to ($120,000 + $175,000) / $810,000 = 36.4%.

This question tested from Session 9, Reading 36, LOS a

Question 59

Which of the following pairs of general categories are least likely to be considered in the formulas used by credit rating agencies to determine the capacity of a borrower to repay a debt?

A)    Margin stability; availability of collateral.

B)   Scale and diversification; leverage.

C)   Operational efficiency; leverage.

D)   Margin stability; scale and diversification.

The correct answer was A) Margin stability; availability of collateral.

The four general categories are: 1) scale and diversification, 2) operational efficiency, 3) margin stability, and 4) leverage. Larger companies and those with more different products lines and greater geographic diversification are better credit risks. High operating efficiency is indicative of a better credit risk. Stable profit margins indicate a higher probability of repayment and thus, a better credit risk. Firms with greater earnings in relation to their debt level are better credit risks. While the availability of collateral certainly reduces lender risk, it is not one of the general categories used by credit rating agencies to determine capacity to repay. Specifically, they would consider: 1) several specific accounting ratios and 2) business characteristics. The availability of collateral falls into neither category.

This question tested from Session 10, Reading 42, LOS c

Question 60

On December 31, Modern Company issued 1,000 10-year, $1,000 face value, 8% coupon bonds to yield 7%. The bonds pay interest semiannually. On its balance sheet Modern should record bonds payable of:

A)    $1,062,053.

B)   $937,947.

C)   $1,071,062.

D)   $1,000,000.

The correct answer was C)  $1,071,062

Because the bonds were issued at a higher coupon than market, the bonds will carry a premium. The liability amount is $1,071,062 [N = (2×10) = 20, PMT = $40,000, I/Y = (7/2) = 3.5, FV = $1,000,000, CPT PV].

This question tested from Session 9, Reading 39, LOS b

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