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18-The accountant's definition of working capital is the same as the definition often used in finance. True b. False 19-In most cases, U.

18-The accountant's definition of working capital is the same as the definition often used in finance.

 a. True

 b. False


19-In most cases, U.S. GAAP requires firms to allocate the full issue price of Convertible Bonds or Convertible Preferred Stock

a. to the bonds or preferred stock and the conversion feature based on fair values.

b. to the price to the conversion feature and none to the bonds or preferred stock.

c. to the bonds or preferred stock and the conversion feature based on the present value of future cash flows.

d. to the bonds or preferred stock and the conversion feature based on the future value of present cash flows.

e. to the bonds or preferred stock and none of the price to the conversion feature.


20-(CMA adapted, Dec 86 #12) A patent is granted by the federal government to an inventor for a period of several years. Costs that are capitalized with regard to a patent would include

a. legal fees of obtaining the patent, costs of successful and unsuccessful patent infringement suits, and research and development costs incurred on the invention that is patented.

b. legal fees of obtaining the patent, incidental costs of obtaining the patent, and costs of successful patent infringement suits.

c. legal fees of obtaining the patent, incidental costs of obtaining the patent, and research and development costs incurred on the invention that is patented.

d. legal fees of obtaining the patent, costs of successful and unsuccessful patent infringement suits, and development costs incurred on the invention that is patented.

e. legal fees of obtaining the patent, costs of successful patent infringement suits, and research and development costs incurred on the invention that is patented.


21-The equity method of accounting for an investment in the common stock of another company should be used when the investment

a. ensures a source of supply such as raw materials.

b. gives the investor voting control over the investee.

c. enables the investor to exercise significant influence over the investee.

d. is composed of common stock and it is the investor's intent to vote the common stock.

e. None of these answer choices is correct.



23-Which of the following is/are not true?

a. U.S. GAAP and IFRS require firms to report these securities at fair value on the balance sheet.

b. Acquisition and disposition of securities available-for-sale are usually investing activities on the statement of cash flows.

c. Securities not available-for-sale appear in investments in securities in noncurrent assets.

d. Securities available-for-sale that a firm intends to sell within one year appear in marketable securities in the current assets section of the balance sheet.


e. none of the above




24-Under U.S. GAAP and IFRS, the firm measures the assets and liabilities of a discontinued operation at the lower of their _____ It reports any gain or loss that results in the Discontinued Operations section of the income statement. The Discontinued Operations section also includes income or loss from operating the unit for that year. Financial statements for prior years included for comparative purposes classify those amounts also as a discontinued operation.

a. net realizable values or the present value of future cash flows.

b. carrying values or the present value of future cash flows.

c. net realizable values or their fair values.

d. carrying values or their fair values.

e. liquidation values or the present value of future cash flows.




25-Which of the following is/are not true regarding the Raw Materials Inventory account?

a. The merchandising firm records purchases of raw materials as debits to the Raw Materials Inventory account.

b. The Raw Materials Inventory account includes the cost of raw materials purchased but not yet transferred to the factory floor.

c. When the manufacturer physically transfers raw materials to the factory floor, it records this transfer as a credit to the Raw Materials Inventory account for the cost of the raw materials transferred and a debit to the Work in Process Inventory account.

d. When the manufacturer physically transfers raw materials to the factory floor, it also transfers the cost of the raw materials from the Raw Materials Inventory account to the Work-in-Process Inventory account.

e. all of the above





26-(CMA adapted, Dec 92 #10) There are many similarities between lessee and lessor accounting for the capitalization of leases. Which one of the following is a criterion for the capitalization of a lease by a lessee?

a. The present value of the minimum lease payments is 75% or more of the fair market value of the leased asset.

b. The lease transfers ownership of the property to the lessee by the end of the lease term.

c. Future costs are reasonably predictable.

d. The lease term is at least 60% of the remaining life of the asset at the beginning of the lease.

e. The lease term is at least 90% of the remaining life of the asset at the beginning of the lease.





27-The accounting for fair value hedges is similar under both U.S. GAAP and IFRS. Which of the following is/are true?

a. If the hedge is not fully effective, the net gain or loss increases or decreases earnings to the degree the offset is incomplete.

b. Firms remeasure both the hedged item and the related derivative instrument (the hedging instrument) to fair value each period.

c. If the hedge is fully effective, the gain (loss) on the derivative will precisely offset the loss (gain) on the asset or liability hedged. The net effect on earnings is zero.

d. Firms remeasure both the hedged item and the related derivative instrument (the hedging instrument) to recognize gains and losses from changes in the fair value of both in net income.

e. all of the above





28-Which of the following is not true?

a. Preferred shares carry special rights.

b. The senior status and special rights increase the risks of preferred shareholders relative to common shareholders.

c. The senior status and special rights may induce certain investors to purchase preferred shares of a firm, even though they would be unwilling to purchase common shares of the same firm.

d. Preferred shares vary with respect to the rights and obligations of the issuing firm and of the investor in the preferred shares.

e. Owners of preferred stock have a claim on the assets of a firm that is senior to the claim of common shareholders.



30-A firm must pay all current and previously postponed preferred dividends before it can pay any dividends on common shares, thus the preferred shares have the feature called

a. convertible dividend rights.

b. noncumulative dividend rights.

c. cumulative dividend rights.

d. participating dividend rights.

e. callable dividend rights


38-A deferred performance liability arises when a firm agrees to provide a warranty for service or repairs for some period after a sale.

 a. True

 b. False


47-In most cases U.S. GAAP requires firms to allocate the full issue price of Convertible Bonds or Convertible Preferred Stock to the bonds or preferred stock and none of the price to the conversion feature.

 a. True

 b. False

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