Question 61
Which of the following is best described as the presentation of assets, liabilities, and equity in a single column?
A) Account format. B) Report format. C) Classified balance sheet. D) Common-size balance sheet.
The correct answer was B) Report format. The report format presents assets, liabilities, and equity in a single column. The account format is a layout in which assets are presented on the left hand side of the page and liabilities and equity are presented on the right hand side. A common-size balance sheet expresses each balance sheet account as a percentage of total assets. A classified balance sheet groups together similar items to arrive at significant subtotals. This question tested from Session 8, Reading 33, LOS b
Question 62
Harding Corp. has a permanently impaired asset. The difference between its carrying value and the present value of its expected cash flows should be written down immediately and:
A) reported as a non-operating loss before computation of net income. B) reported as a separately disclosed loss net of tax effect, if any, due to a change in accounting method. C) directly charged against retained earnings. D) reported as an operating loss.
The correct answer was D) reported as an operating loss. Impairment write-downs are reported losses “above the line” and are included in the computation of income from continuing operations.
This question tested from Session 9, Reading 37, LOS d
Question 63
Longboat, Inc. sold a luxury passenger boat from its inventory on December 31 for $2,000,000. It is estimated that Longboat will incur $100,000 in expenses servicing the warranty during its 5-year obligation. Longboat’s tax rate is 30%. To account for the tax implications of the warranty obligation, Longboat should:
A) record a decrease in taxes payable of $30,000. B) record a deferred tax liability of $30,000. C) make no entry until actual warranty expenses are incurred. D) record a deferred tax asset of $30,000.
The correct answer was D) record a deferred tax asset of $30,000. Warranty expense should be recorded when the inventory item covered by the warranty is sold. A deferred tax asset is created when warranty expenses are accrued on the financial statements but are not deductible on the tax returns until the warranty claims are paid. The full amount of the obligation, $100,000, is recorded as an expense, with a deferred tax asset of $30,000. Note that a deferred tax asset results when taxable income is more than pretax income and the difference is likely to reverse (warranty will be paid) in future years.
This question tested from Session 9, Reading 38, LOS f
Question 64
Under U.S. GAAP, which of the following pairs is the correct cash flow statement classification for dividends paid and interest received, respectively? Dividends paid Interest received A) Financing activity Operating activity B) Financing activity Investing activity C) Operating activity Operating activity D) Operating activity Investing activity The correct answer was A) Financing activity Operating activity Under U.S. GAAP, dividends paid to the firm’s shareholders is reported as a financing activity, not an operating activity. Interest received (from investments) by the firm is reported as an operating activity, not an investing activity. Note that under IFRS, the classification of dividends and interest in the cash flow statement is more flexible and allows more than one choice in each case.
This question tested from Session 8, Reading 34, LOS c
Question 65
Which of the following statements is correct regarding the treatment of inventory and joint ventures, respectively, under U.S. GAAP and IFRS?
Inventory Joint ventures A) Write-ups allowed under IFRS Equity method preferred under IFRS B) Write-ups allowed under IFRS Equity method preferred under U.S. GAAP C) Write-ups allowed under U.S. GAAP Equity method preferred under U.S. GAAP D) Write-ups allowed under U.S. GAAP Equity method preferred under IFRS
The correct answer was B) Write-ups allowed under IFRS Equity method preferred under U.S. GAAP
Under U.S. GAAP, once an inventory write-down occurs, any subsequent recovery of value (write-up) is ignored. Under IFRS, subsequent recovery in the value of inventory can be included in inventory values (write-up is allowed). Under U.S. GAAP, the equity method is usually required for joint ventures. Although the equity method can be used under IFRS, proportional consolidation is preferred. This question tested from Session 10, Reading 42, LOS a | 
发表于 2008-5-26 12:03
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