W06_136A1_MT1 - February 6, 2006 Anderson ECON 136A Midterm...

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February 6, 2006 Anderson ECON 136A Midterm #1 v. 1 Name _________________________ Answer multiple choice questions (#1-25) on your green scantron and the remaining problems in your blue-books. 1. Real estate is sold for $1 million, payable as follows: $850,000 paid in cash on the day of sale and $150,000 due in five years, bearing interest at 0%. Would the seller compute their gain on the sale of that real estate using a sales price: a. equal to $1 million b. less than $1 million c. more than $1 million d. none of the above 2. If there is a change in accounting estimate which would have resulted in an additional charge to a prior year expense, which of the following statements is true: a. It should be reflected as a correction of an error in the statement of stockholder's equity, net of tax and captioned "restatement". b. It should be reflected as a cumulative effect of a change in accounting treatment, net of tax on the statement of income. c. It should have no impact to the prior year, and would be accounted for on a "current and forward" basis. d. It should be reflected only in the statement of cash flows. 3. If a limited partner owns 90% of a partnership, but only controls 2 out of 5 votes necessary to effect major decisions of the partnership, then the limited partner should: a. Consolidate as their ownership exceeds 50%; b. Use the equity method as they exhibit significant influence, but not control; c. Account for their investment as held to maturity investment under FAS 115; d. Just forget about it and hope the investment performs well. 4. The following is an example of a limitation of an income statement prepared under generally accepted accounting principles: a. It relies in part upon estimates made by management and which consequently impacts the "quality" of earnings; b. If the statement of cash flows is ignored, then the income statement may reflect what is referred to as "paper income"; c. An income statement is transaction-based, and consequently, important activities may not be reflected; d. All of the above.
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Midterm #1 v. 1--Page 2 5. Another term for the balance sheet is: a. Statement of sources and uses of cash b. Statement of activity for the period c. Statement of financial position d. I have no idea 6. The term financial flexibility is impacted by: a. The liquidity and solvency of an entity; b. The willingness of management to accept risks; c. The degree of strecthing exercises performed before work by the finance department; d. The number of divisions an entity has. 7. A change in accounting principle relating to depreciation occurs which is required to be treated as a cumulative effect of a change in accounting principle. The cumulative impact to prior periods is an increase to accumulated depreciation of $200,000 while the new method produces $75,000 less depreciation expense in the current year. The Company has an effective tax rate of 30%. Which of the following best describes how this should be reported in
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This note was uploaded on 05/18/2011 for the course ECON 136A taught by Professor Anderson during the Spring '08 term at UCSB.

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W06_136A1_MT1 - February 6, 2006 Anderson ECON 136A Midterm...

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