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Unformatted text preview: H25: fifil‘fififfi fill a E 1. fifilififl Which of the following is not generally correct about recording a sale of a debt security before maturity date? A. Accrued interest Will be received by the seller even though it is not an interest payment date. B. An entry must be made to amortize a discount to the date of sale. 1.1 C. The entry to amortize a premium to the date of sale includes a credit to the Premium on Investments in Debt Securities. D. A gain or loss on the sale is not extraordinary. e g : IC— Debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses and are included as other comprehensive income and as a separate component of stockholders‘ equity are A. held-to-maturity debt securities. 12 B. trading debt securities. C. availableiforrsale debt securities. D. neverrsell debt securities. e g : It— A debt security is transferred from one category to another. Generally acceptable accounting principles require that for this particular reclassification (1) the security be transferred at fair value at the date of transfer. and (2) the unrealized gain or loss at the date of transfer currently carried as a separate component of stockholders‘ equity be amortized over the remaining life of the security. What type of transfer is being described? A. Transfer from trading to available-for-sale 1.3 B. Transfer from availablerfcirrsale to trading C. Transfer from held-to-maturity to available-for-sale D. Transfer from available-for-sale to held-to-maturity ele— i Int-lair Hm um um mcif'hrirl nf :rrrii inc-inn Fm- iriucicrmnnfc :n invncfnr rnrnririivn: ii-c chum nf rim:- mminnc in H1:- nnrinrl in whirin Hm: Ll lhttpq'i'zl1$5.226.65fnetinnet_zyks_v1Sidojso'r‘jsp=showModalDialogFrame.jso Internet HHFIEI g [a @%i+¥Ui|§E3fi-Microso... ahttp:if211.65.228.65-... I f @‘ é I El '5' “i; “‘31 H25: fifil‘fififfi 1m agin— Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the J A. investor sells the investment. B. investee declares a diwdend. 1.4 C. investee pays a dividend. D. earnings are reported by the investee in its financial statements. e g : ID— An available-for-sale debt security is purchased at a discount. The entry to record the amortization of the discount includes a A. debit to Available-for-Sale Securities. B. debit to the discount account. 1.5 C. debit to Interest Revenue. D. none of these. e g : IA— .Taxable income of a corporation A. differs from accounting income due to differences in intraperiod allocation between the two methods of income determination. B. differs from accounting income due to differences in interperiod allocation and permanent differences between the two methods of income determination. 1.6 C. is based on generally accepted accounting principles. D. is reported on the corporation‘s income statement. g g : IE Major reasons for disclosure of deferred income tax information is (are) A. better assessment of quality of earnings. B. better predictions of future cash flows. 4 —: ,- .i__. .___...__ l._l.l. I: lhttpq'i'zl1$5.226.65fnetinnet_zyks_v1Sidojso'r‘jsp=showModalDialogFrame.jso Internet witlfil @ gi‘fgullfigj‘i-Microso... ahttp:if211.65.228.65- @KfiI-Microsoft Word I l f é l @ '3' «a 11:31 H25: fifil‘fifiifi illl D. is reported on the corporation‘s income statement. a g : IB— Major reasons for disclosure of deferred income tax information is (are) A. better assessment of quality of earnings. J B. better predictions of future cash flows. 1.7 C. that it may be helpful In setting government policy. D. all of these. a g : ID— When an investor's accounting period ends on a date that does not coincide vvith an interest receipt date for bonds held as an investmenty the investor must A. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the amount of interest accrued since the last interest receipt date. B. notify the issuer and request that a special payment be made for the appropriate portion of the interest period. 1.8 C. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the total amount of interest to be received at the next interest receipt date. D. do nothing special and ignore the fact that the accounting period does not coincide With the bond's interest DEI’IDd. e e : IA— Held-to—maturity securities are reported at A. achisition cost. B. acquisition cost plus amortization of a discount. 1.9 C. acquisition cost plus amortization of a premium. D. fair value. g g : '3 When a company has acquired a "passive interest" in another corporation. the acquiring company should account for the investment A. by using the equity method. lhttpq'i'zl1$5.226.65fnetinnet_zyks_v1Sidojsp'r‘jsp=showModalDialogFrame.jsp Internet fiftlfil @ agi‘l'gullfigj‘i-Microso... ahttp:if211.65.228.65-... @Kfil-Microsoft Word I l f é l @ '3' «a 11:32 H25: fifil‘fifiifi illl When a company has acquired a "passwe interest" in another corporation, the acquiring company should account for the investment A. by uSIng the equity method. B. by using the fair value method. 1.10 C. by using the effective interest method. D. by consolidation. J a g : IB— Use of the effective-interest method in amortizing bond premiums and discounts results in A. a greater amount of interest income over the life of the bond issue than would result from use of the straight-line method. B. a varying amount being recorded as interest income from period to period. 1.11 c. a variable rate of return on the book value of the investment. d. a smaller amount of interest income over the life of the bond issue than would result from use of the straightrline method. a g : IB— An option to convert a convertible bond into shares of common stock is a(n) A. embedded derivative. B. host security. 1.12 C. hybrid security. D. fair value hedge. e g : IA— Deferred tax amounts that are related to specific assets or liabilities should be claSSified as current or noncurrent based on A. their expected reversal dates. B. their debit or credit balance. 1.13 C. the length of time the deferred tax amounts Will generate future tax deferral benefits. D. the classification of the related asset or liability. _l V lhttpq'i'zl1$5.226.65fnetinnet_zyks_v1Sidojsp'r‘jsp=showModalDialogFrame.jsp Internet QFIEI g [a éi+¥UiIEE§E-Microso... ahttp:1f211.65.228.65-... @Kffil-Microsoft Word I l f @l 5 | Q 'f' «g 11:32 51H; ampere 1m Interperiod income tax allocation procedures are appropriate when A. an extraordinary loss will cause the amount of income tax expense to be less than the tax on ordinary net income. B. an extraordinary gain Will cause the amount of Income tax expense to be greater than the tax on ordinary net income. C. differences between net income for tax purposes and financial reporting occur because tax laws and financial accounting principles do not concur on the items to be 1.14 recognized as revenue and expense. D. differences between net income for tax purposes and financial reporting occur because even though financial accounting principles and tax laws concur on the item to be recognized as revenues and expenses, they don't concur on the timing of the recognition. J a x : ID— Assuming a 40% statutory tax rate applies to all years involvedy which of the folloWIng Situations Will give rise to reporting a deferred tax liability on the balance sheet? LA revenue is deferred for finanCIal reporting purposes but not for tax purposes. ILA revenue is deferred for tax purposes but not for financial reporting purposes. III. An expense is deferred for financial reporting purposes but not for tax purposes. 1v. An expense is deferred for tax purposes but not for financial reporting purposes. 1.15 A. item II only B. items I and II only C. items II and III only D. items I and IV only a g : IC— A correct valuation is A. available-for-sale at amortized cost. B. held-to-maturity at amortized cost. 1.16 C. held-to-maturity at fair value. D. none of these. lhttp:fi'211$5.226.65fnetinnet_zyks_y1Sidojsp'r‘jsp=showModalDialogFrame.jsp Internet fiftlfil @ agi‘lgullfigj‘i-Microso... ahttp:if211.65.228.65-... @Kfil-MICI’DSOR Word I l f é l @ '3' «a 11:32 awaits: ampere 31' 1.16 C. held-to-maturity at fair value. D. none of these. a e : IB— Byner Corporation accounts for its investment in the common stock of Yount Company under the equity method. Byner Corporation should ordinarily record a cash dividend received from Yount as A. a reduction of the carrying value of the investment. B. additional paid-in capital. 1.17 C. an addition to the carrying value of the investment. D. dividend income. J a g : IA— Renner Corporation's taxable income differed from its accounting income computed for this past year. An item that would create a permanent difference in accounting and taxable incomes for Renner would be A. a balance in the Unearned Rent account at year end. 118 B. usmg accelerated depreciation for tax purposes and straight-line depreciation for book purposes. C. a fine resulting from violations of OSHA regulations. D. making installment sales during the year. a g : IC— Deferred taxes should be presented on the balance sheet A. as one net debit or credit amount. B. in two amounts: one for the net current amount and one for the net noncurrent amount. 1.19 C. in two amounts: one for the net debit amount and one for the net credit amount. D. as reductions of the related asset or liability accounts. selfl— Ll lhttp:fi'211$5.226.65fnetinnet_zyks_y1Sidojsp'r‘jsp=showModalDialogFrame.jsp Internet fiftlfil @ fii‘l‘gullfigj‘i-Microso... ahttp:if211.65.228.65- @Kfil-MICI’DSOR Word I l f é l @ '3' «a 11:32 Hint—1C fifil‘fifilfi Type of Difference Deferred Tax A. Permanent Asset B. Permanent Liability 1.20 C. Temporary Asset D. Temporary Liability a g : l— Which of the following differences would result In fiJture taxable amounts? A. Expenses or losses that are tax deductible after they are recognized In financial income. B. Revenues or gains that are taxable before they are recognized In financial Income. 1.21 C. Revenues or gains that are recognized In financial Income but are never Included In taxable Income. D. Expenses or losses that are tax deductible before they are recognized In financial income. a g : IC— Recognition of tax benefits in the loss year due to a loss carryforward requires A. the establishment of a deferred tax liability. B. the establishment of a deferred tax asset. 1.22 C. the establishment of an Income tax refiind receivable. D. only a note to the financial statements. selfl— When a company holds between 20% and 50% of the outstanding stock of an Investee, which of the folloWIng statements applies? A. The Investor should always use the equity method to account for its investment. B. The investor should use the equity method to account for its investment unless circum-stances indicate that it is unable to exercise "significant Influence" over the INVEStBB. 1.23 C. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "Significant influence" over the investee. D. The Investor should always use the fair value method to account for its investment. lhttpu‘fZl 1 .65.220.65fnetinnet_zyks_v131dojsp7jsp=showModalDialogFrame.jsp IE Internet HE'FIEI g [a @%i+¥fll§r€3fi-Microso... @httpyrznsszzess- lfijmfiI-Micmsoft Word I |aela|o Hint—1C fifil‘fifilfi :5- «g 11:33 _?l1l selfl— Gill Company reported the following results at the end of its first year of operations: Income (per books before Income taxes) 1,000,000 Taxable Income 1,600,000 The disparity between book Income and taxable Income Is attributable to a temporary difference that Will reverse next year. What should Gill record as a net deferred income tax asset or liability for the current year, assuming that at the end of the year the known tax rates are 40% for this year and 35% for next year? 1.24 A. 240,000 deferred income tax liability B. 210,000 deferred Income tax asset C. 240,000 deferred Income tax asset D. 210,000 deferred Income tax liability e e : IB— An unrealized holding gain on a company's available-for-sale securities should be reflected In the current financial statements as A. an extraordinary item shown as a direct increase to retained earnings. B. a current gain resulting from holding securities. 1.25 C. a note or parenthetical disclosure only. D. other comprehenSIve Income and Included In the equity section of the balance sheet. ele— Which of the folloWIng Is not conSIstent With the recommendations contained In IAS 39, FinanCIal Instruments: Recognition and Measurement? A. Interest revenue and expense would be calculated on a fair value baSIs. B. Shortrterm financial instruments would be reported at fair value and longrterm financial Instruments would be reported at historical cost. 1.26 C. All gains and losses that result from reporting financial Instruments at fair value would be recognized In comprehenSIve Income when they occur. D. Disclosure would be required of the significant financial risks the enterprise Is exposed to related to each financial Instrument. gela— The rationale for Interperiod Income tax allocation Is to lhttpu‘fZl 1 .65.220.65fnetinnet_zyks_v131dojsp7jsp=showModalDialogFrame.jsp HE'FIEI g [a éi+¥UIIEE§E-Microso... @httpyrznsszzess- lfijmfiI-Micmsoft Word I IE Internet |aela|o :5- 51H; fifil‘fifilfi illl exit— The rationale for interperiod income tax allocation is to A. recognize a tax asset or liability for the tax consequences of temporary differences that exist at the balance sheet date. B. recognize a distribution of earnings to the taXIng agency. 1.27 C. reconcile the tax consequences of permanent and temporary differences appearing on the current year‘s financial statements. D. adjust income tax expense on the income statement to be in agreement vvith income taxes payable on the balance sheet. e g : Is— All of the following are requirements for disclosures related to financial instruments except A. discloSIng the fair value and related carrying value of the instruments. B. distinguishing between financial instruments held or issued for purposes other than trading. 1.28 C. combining or netting the fair value of separate financial instruments. D. displaying as a separate classification of other comprehensive income the net gainlloss on derivative instruments designated in cash flow hedges. J e g : IC— Which of the following is not a debt security? A. Convertible bonds B. Commercial paper 1.29 C. Loans receivable D. All of these are debt securities. g g : IC Which of the following Will not result in a temporary difference? A. Product warranty liabilities B. Advance rental receipts 1 an r- lncfallmcmf calcic Ll lhttp:fi'211$5.226.65fnetinnet_zyks_v1Sidojsp'r‘jsp=showModalDialogFrame.jsp Internet fiftlfil @ agi‘fgullfigj‘i-Microso... ahttp:if211.65.228.65-... @Kfil-MICI’DSOR Word I l f é l @ '3' «a 11:33 525: fifil‘fifilfi illl exh— Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income? A. Subscriptions received in advance. B. Prepaid royalty received in advance. 1.31 C. An installment sale accounted for on the accrual ba5is for financial reporting purposes and on the installment (cash) ba5is for tax purposes. D. Interest received on a municipal obligation. a g : IC— Accounting for income taxes can result in the reporting of deferred taxes as any of the following except A. a current or longrterm asset. B. a current or long-term liability. 1.32 C. a contra-asset account. D. All of these are acceptable methods of reporting deferred taxes. a g : ID— Which one of the following is consistent With the requirements of [AS 32? J A. Preference shares that provide for cumulative dividends should be reported as liabilities. B. Shares that are redeemable if a highly likely future event occurs should be reported in a separate section of shareholders’ equity, above preference shares. 1.33 C. Dividends from preference shares that have accelerated dividend requirements should be reported as a reduction of contributed surplus. D. Dividends relating to preference shares that provide for mandatory redemption should be reported as an expense on the income statement. g g : ID Taxable income of a corporation differs from pretax financial income because of Permanent Temporary Differences Differences lhttp:fi'211$5.226.65fnetinnet_zyks_v1Sidojsp'r‘jsp=showModalDialogFrame.jsp Internet fiftlfil @ fif‘l‘gullfigj‘i-Microso... ahttp:if211.65.228.65- @Kfil-MICI’DSOR Word I l f é l @ '3' «a 11:33 asst: lemme 1m D. Dividends relating to preference shares that provide for mandatory redemption should be reported as an expense on the income statement e e : ID— Taxable income of a corporation differs from pretax financial income because of Permanent Temporary Differences Differences A. ND ND 1.34 B. No Yes C. Yes Yes D. Yes No e e : IC— Dane, Inc” owns 35% of Marin Corporation. During the calendar year 2007, Marin had net earnings of $300.000 and paid dividends of $30.000. Dane mistakenly recorded these transactions u5ing the fair value method rather than the equity method of accounting. What effect would this have on the investment account, net income and retained earnings, respectively? A. Understatey overstatey overstate 1.35 B. Oyerstate, understatey understate C. Overstate, overstate, overstate J D. Understatey understate, understate g g : ID When investments in debt securities are purchased between interest payment datesy preferably the A. securities account should include accrued interest. B. accrued interest is debited to Interest Expense. 1.36 C. accrued interest is debited to Interest Revenue. D. accrued interest is debited to Interest Receivable. Ihttpu'i'ZI1$5.223.65fnetinnet_zyks_v1Sidojsp'r‘jsp=showModaIDialogFrame.jsp Internet fiftlfil @ agi‘l'gullfigj‘i-Microso... ahttp:lf211.65.228.65-... @KfiI-Microsoft Word I l f é l @ '3' «a 11:33 asst: lemme 1m 1.36 C. accrued interest is debited to Interest Revenue. D. accrued interest is debited to Interest Receivable. e e : IC— Interperiod tax allocation would not be required when A. costs are written off in the year of the expenditure for tax purposes but capitalized for accounting purposes. B. statutory (or percentage) depletion exceeds cost depletion for the period. 1.37 C. different methods of revenue recognition arise for tax purposes and accounting purposes. D. different depreciable lives are used for machinery for tax and accounting purposes. e e : IB— Pippen Co. purchased ten-yeary 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. One step in calculating the issue price of the bonds is to multiply the principal by the table value for A. 10 periods and 10% from the present value of 1 table. 138 B. 10 periods and 8% from the present value of 1 table. C. 20 periods and 5% from the present value of 1 table. D. 20 periods and 4% from the present value of 1 table. e e : ID— J The accounting for fair value hedges records the derivative at its A. amortized cost. B. carrying value. 1.39 C. fair value. D. historical cost. eel— Ll Ihttpu'i'ZI1$5.223.65fnetinnet_zyks_v1Sidojsp'r‘jsp=showModaIDialogFrame.jsp Internet QFIEI g [a éi+¥flllfisz-Microso... @httwrzussezass-... lfijmfil-Micmsoft Word I l f @l 5 | Q 'f' «g 11:34 http:,-",-"Zl 155228.65 - i‘l’flfi - Microsoft Internet Explorer in the amount of$500,000 in each ofthe next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable i classified as $500,000 current and $500,000 noncurrent. The income tax rate is 30% for all years. AThe income tax expense is 1. 150,000. 2. 225,000. 3. 250,000. 4. 500,000. B.The deferred tax asset to be recognized is 1. 0. 2. 75,000 current. 3. 375,000 current. 4. 375,000 noncurrent. IC'I‘he deferred tax liability—current to be recognized is 1. 75,000. 2. 225,000. 3. 150,000. 4. $300,000. - A ILDDDD El Il.0000 C I3.0000 ( Efi : seas.- . —-E§.€ifi“fllfi-") IE gr}; I I I I I I0 Internet flifl‘Ftfil @ éitflflIIKéE-Micro... I ahttp:,l',l'211.65.228.65-...“ahttp:,l',l'211.65.228.65-... Eitfii-Microsoft Word I I 6° g I E] '3' I: http 211.65.228.65 - i‘l'EE - Microsoft Internet Explorer §fE ME (EMJ%E¥EH§ET¥ {531E (Em)fii¥fifi $25,000 and paid a cash dividend of$30,000, applying the fair value method would give a debit balance in the Investment in Alley Company Stock account at the end of2008 of 1. $111,000. 2. $135,000. 3. $150,000. 4. $144,000. D. IfElston Company acquired a 30% interestin Alley Company on December 31, 2007 for $202,500 and during 2008 Aley Company had net income of $75,000 and paid a cash dividend of$30,000, applying the equity method would give a debit balance in the Investment in Aley Company Stock account at the end of2008 of $202,500. $216,000. $225,000. $217,500. - A [w [w W [w t we: Ififi. —-E§..€E“fiifi") lg Internet '5' «g 11:34 QFIIEI a @ aéfifiiJ‘Iizfi-Mlcm... ahttp:,if211.65.228.65-...I ahttp1f1211.65.228.65-... @Ktfii-Mlcmson Word | f a‘ g, | Q ...
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This note was uploaded on 03/30/2012 for the course ACCOUNTING 1204 taught by Professor Chang during the Spring '11 term at Nanjing University.

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