56、Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted.
During late December 2007 Popular Publishing Inc. acquired a small competitor, Max's Magazines. In the evaluation of the acquisition it was determined that the customer lists of Max's Magazines had a fair value of $50,000. Popular Publishing had spent $15,000 during the year updating and maintaining its own customer lists. What is the correct amount and asset account that will be recorded by Popular Publishing for the year-ended December 31, 2007, related to customer lists?

Select exactly 1 answer(s) from the following:

A. $50,000 identifiable intangible asset

B. $65,000 identifiable intangible asset

C. $50,000 unidentifiable intangible asset

D. $65,000 unidentifiable intangible asset

57、Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted.
Melbourne Manufacturing has equipment with an original cost of $850,000, accumulated amortization of $300,000 and 5 years of estimated remaining useful life. Due to a change in market conditions Melbourne now estimates that the equipment will only generate cash flows of $80,000 per year over its remaining useful life. The company's incremental borrowing rate is 8%. What is the amount of the impairment loss closest to and what would be the effect on the company's return on assets (ROA) in future periods?

Select exactly 1 answer(s) from the following:

A. Answer A.

B. Answer B.

C. Answer C.

D. Answer D.

58、Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted.

Which of the following factors is an analyst least likely to consider when determining if a company's deferred tax liabilities should be treated as a liability or equity?

Select exactly 1 answer(s) from the following:

A. The growth rate of the firm.

B. The average discount rate of liabilities.

C. The expectation that temporary differences will reverse.

D. The use of accelerated depreciation methods for tax purposes.

59、Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted.

On January 1, 2007, Peoria Products Inc. entered into a lease agreement to lease a piece of machinery as the lessor. The annual lease payments are $50,000, due December 31, the lease term is for 5 years, the machine has an estimated useful life of 6 years, and Peoria currently records the machine on its balance sheet at its cost of $160,000. The incremental rate of the lease is 8% and they are reasonably assured of the collection of the lease payments. Which of the following best describes the classification and effect of the lease on Peoria's income statement for 2007?

Select exactly 1 answer(s) from the following:

A. Operating lease. Rental revenue of $50,000.

B. Direct financing lease. Interest income of $15,971.

C. Sales type lease. Gross profit of $39,635 plus interest income of $15,971.

D. Direct financing lease. Gross profit of $39,635 plus interest income of $15,971.

60、Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted.

Which of the following would be the most useful to an analyst trying to assess the credit worthiness of a company?

Select exactly 1 answer(s) from the following:

A. Return measures related to net income.

B. Return measures related to operating cash flow.

C. Information related to the scale and diversity of a company's operations.

D. Information related to operational efficiency of the company's operations.

56 Correct answer is A

“Understanding the Balance Sheet,” Thomas R. Robinson, Jan Hennie van Greuning, Elaine Henry, and Michael A. Broihahn
2008 Modular Level I, Vol. 3, pp. 218-220
“Analysis of Long-Lived Assets: Part I – The Capitalization Decision,” Gerald I. White, Ashwinpaul C. Sondhi, and Dov Fried
2008 Modular Level I, Vol. 3, pp. 354-355
Study Sessions 8-33-e, 9-36-b
explain the measurement bases (e.g., historical cost and fair value) of assets and liabilities, including current assets, current liabilities, tangible assets, and intangible assets;
determine which intangible assets, including software development costs and research and development costs, should be capitalized, according to U.S. GAAP and international accounting standards
The purchased customer list is an identifiable intangible because it can be sold separately from the company and it would be recorded at its fair market value, the amount paid for it in the acquisition, $50,000. The amount spent by Popular on its own lists, $15,000, would have to be expensed because internally generated intangibles are not capitalized.

57 Correct answer is C

“Understanding the Income Statement,” Thomas R. Robinson, Jan Hennie van Greuning, Elaine Henry, and Michael A. Broihahn
2008 Modular Level I, Vol. 3, p. 169
“Analysis of Long-Lived Assets: Part II – Analysis of Depreciation and Impairment,”
Gerald I. White, Ashwinpaul C. Sondhi, and Dov Fried
2008 Modular Level I, Vol. 3, pp. 403-404
Study Session 9-37-d
explain and illustrate the use of impairment charges on long-lived assets, and analyze the effects of taking such impairment charges on a company’s financial statements and ratios
The equipment is impaired. NBV = $550,000, which is greater than the sum of the undiscounted cash flows 5 years x $80,000 = $400,000. The amount of the impairment is 550,000 – PV of the cash flows = 550,000 – 319,417 (PMT = 80,000, N = 5, i = 8%) = 230,583. The company’s ROA will increase. There will be lower depreciation charges in the future, which will increase net income, and a lower carrying value of assets, which decreases total assets. Both factors would increase any future ROA.

58 Correct answer is B

“Analysis of Income Taxes,” Gerald I. White, Ashwinpaul C. Sondhi, and Dov Fried
2008 Modular Level I, Vol. 3, pp. 439-440
Study Session 9-38-d
explain the factors that determine whether a company’s deferred tax liabilities should be treated as a liability or as equity for purposes of financial analysis
The classification of deferred taxes as liabilities or equity depends on the likelihood, or expectation, of reversal. For growing firms and those using accelerated methods of depreciation, the temporary differences tend not to reverse. If the analyst determined the deferred tax liabilities were likely to reverse, and hence should be classified as liabilities, then it would be appropriate to discount them at the company’s average discount rate. But the discount rate is not a factor in determining if reversal is likely.

59 Correct answer is C

“Leases and Off-Balance-Sheet Debt,” Gerald I. White, Ashwinpaul C. Sondhi, and Dov Fried
2008 Modular Level I, Vol. 3, pp. 545-551.
Study Session 9-40-d
distinguish between sales-type leases and direct financing leases and explain the effects of these types of leases on the financial statements of lessors
It is a sales type lease: the lease period covers more than 75% of its useful life (5/6) and the asset is on their books at less than the present value of the lease payments ($199,635) (PMT = $50,000, N=5, i=8%). They must have acquired or manufactured the asset if it is recorded at less than the present value of the lease payments. As a sales type lease they will recognize gross profit for the difference of the present value and the cost (199,635 - 160,000 = 39,635) and then interest income on the net investment in the lease (0.08 x 199,635 = 15,971).

60 Correct answer is B

“Financial Statement Analysis: Applications,” Thomas R. Robinson, Jan Hennie van Greuning, Elaine Henry, and Michael A. Broihahn
2008 Modular Level I, Vol. 3, pp. 649-650
Study Session 10-42-c
describe the role of financial statement analysis in assessing the credit quality of a potential debt investment
Credit analysis is concerned with a company’s debt-paying ability. Returns to creditors are normally paid in cash, so the company’s ability to generate cash internally is the most important factor in credit analysis.

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67 asset.