Q1. Which of the following most accurately describes the financial statements and ratio impacts of recognizing an asset retirement obligation? A) Depreciation will be higher; net profit margin and times interest earned will be lower. B) Equity will be higher; net profit margin and times interest earned will be higher. C) Equity will be higher; net profit margin and times interest earned will be lower.
Q2. If a company is required to pay the future costs for closure, removal, or environmental effects of a long-term asset, the capitalized value of the asset: A) be recorded as the installed cost of the asset plus any leasehold improvements that are required to put the asset into good working order. B) should include the present value of any asset retirement obligation, which is also recorded as a liability at the time of acquisition. C) be recorded on the balance sheet based on the market value at the time of acquisition less the cost associated with any asset retirement obligation.
Q3. Caruso Ltd. just started operating a diamond mining site in the Arctic and intends to do so for exactly ten years. Caruso will be required to pay an estimated $2.0 million in clean-up costs of the site. The company expects to incur this expense over two years after mining activity ceases and is not permitted to deduct the costs for tax purposes until the clean-up is completed. For financial statement purposes, Caruso recognizes an asset retirement obligation (ARO) and will recognize accretion expense over the ten-year life of the asset. At the end of ten years, Caruso will recognize: A) a deferred tax liability. B) a deferred tax asset. C) no deferred tax items.
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发表于 2009-1-19 10:16
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