Question 51 

Under the liability method of accounting for deferred taxes, deferred tax: 

A) liability and asset accounts are adjusted to changes in tax rates as changes take place. 

B) expense is calculated using current tax rates with no adjustments.

C) liability and asset accounts are maintained at historical tax rates until they reverse.

D) liability and asset accounts come into existence when tax rates change.

Question 52 

Two growing firms are identical except that Alfred Company capitalizes costs for long-lived assets over time whereas Canute Company expenses these costs. For these two firms, which of the following financial statement effects is generally least accurate? Alfred will show: 

A) less volatile reported income than Canute.

B) higher cash flows from operations than Canute.

C) more volatile return on assets than Canute.

D) lower leverage ratios than Canute.

Question 53 

Which of the following items would affect owners’ equity and also appear on the income statement? 

A) Unrealized gains and losses from available-for-sale securities.

B) Dividends paid to shareholders.

C) Foreign currency translation gains and losses.

D) Unrealized gains and losses from trading securities.

Question 54 

Lawson, Inc.’s net income for the year was $1,060,000 with 420,000 shares outstanding. Lawson has 2,000 shares of 8%, $1,000 par value convertible preferred stock that were outstanding the entire year. Each share of preferred is convertible into 50 shares of common stock. Lawson's diluted earnings per share are closest to: 

A) $2.04.

B) $2.14.

C) $2.52.

D) $1.94.

Question 55 

Evergreen Company’s financial records disclose the following:

  ♣ A milling machine was purchased January 1, 20X1 for $18,000,000. 

  ♣ Depreciation was taken in 20X1, 20X2 and 20X3 using the straight-line depreciation method. 

  ♣ Salvage value was estimated to be $2,000,000. 

  ♣ Useful life was originally estimated to be 12 years. 

At the beginning of 20X4, Evergreen changes the estimated useful life of the milling machine to a total of 18 years and salvage value to $3,000,000. Because of these changes, 20X4 pretax income will be:

A) $600,000 higher than what it would have been without the change.

B) $600,000 lower than what it would have been without the change.

C) $333,333 higher than what it would have been without the change.

D) $333,333 lower than what it would have been without the change.

答案和详解如下：

Question 51 

The correct answer was A)

The liability method (SFAS 109 of U.S. GAAP) takes a balance sheet approach and adjusts deferred tax assets and liabilities to future tax rates. 

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

Question 52 

The correct answer was C) more volatile return on assets than Canute. 

Capitalization smoothes the reported income by spreading costs over time. This will also make earnings ratios such as ROA less volatile. A capitalizing company classifies the costs of long-lived assets as CFI outflows, while a company that expenses these costs classifies them as CFO outflows. So Alfred's CFO will be higher and CFI lower. Asset and equity levels will be higher for a firm that capitalizes, so given identical debt levels, the capitalizing firm will show less financial leverage (lower debt/equity and debt/assets ratios) than the expensing firm. 

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

Question 53 

The correct answer was D) Unrealized gains and losses from trading securities. 

Unrealized gains and losses from trading securities are reflected in the income statement and affect owners’ equity. However, unrealized gains and losses from available-for-sale securities and foreign currency translation gains and losses are specifically included in other comprehensive income. All transactions included in other comprehensive income affect equity but not net income. Dividends paid to shareholders reduce owners’ equity but not net income. 

This question tested from Session 8, Reading 32, LOS k

Question 54 

The correct answer was A) $2.04. 

Lawson’s basic EPS ((net income – preferred dividends) / weighted average common shares outstanding) is ($1,060,000 – (2,000 × $1,000 × 0.08)) / 420,000 = $2.14. To calculate diluted EPS the convertible preferred shares are presumed to have been converted, the preferred dividends paid are added back to the numerator of the EPS equation, and the additional common shares are added to the denominator of the equation. Lawson’s diluted EPS is $1,060,000 / (420,000 + 100,000) = $2.04. 

This question tested from Session 8, Reading 32, LOS h, (Part 2)

Question 55 

The correct answer was A) $600,000 higher than what it would have been without the change. 

Straight line depreciation was originally at a rate of ($18,000,000 - $2,000,000) / 12 = $1,333,333 per year. After 20X3, the carrying value of the milling machine was $18,000,000 – (3 * $1,333,333) = $14,000,000. After the change, straight-line depreciation will be ($14,000,000 - $3,000,000) / (18 – 3) = $733,333 per year. The difference is a $1,333,333 - $733,333 = $600,000 decrease in depreciation expense, which results in an increase in pretax income of $600,000. 

This question tested from Session 9, Reading 37, LOS b

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