,1. Multiple Choice: What is the effect of a capital lease on a lessee's
balance sheet?
a) Increase in assets and liabilities
b) Decrease in assets and liabilities
c) No effect
d) Increase in assets only
Correct Answer: a) Increase in assets and liabilities
Rationale: A capital lease is recorded as both an asset and a
liability on the balance sheet, reflecting the lessee's right to use the
asset and the obligation to make lease payments.
2. Fill-in-the-Blank: The equity method of accounting for
investments requires the investor to recognize their share of the
investee's _______.
Correct Answer: Income
Rationale: Under the equity method, the investor recognizes their
proportionate share of the earnings or losses of the investee in their
income statement.
3. True/False: The fair value option allows companies to record
financial assets and liabilities at their fair value.
, Correct Answer: True
Rationale: The fair value option gives companies the choice to
record financial assets and liabilities at fair value, with changes in
fair value recognized in earnings.
4. Multiple Response: Which of the following are potential
financial statement impacts of post-retirement benefit plans? (Select
all that apply)
a) Increase in expense
b) Decrease in liability
c) Increase in liability
d) Decrease in equity
Correct Answers: a) Increase in expense, c) Increase in liability,
d) Decrease in equity
Rationale: Post-retirement benefit plans typically result in an
increase in expense and liability, and a corresponding decrease in
equity.
5. Multiple Choice: In a period of rising prices, which inventory
valuation method would result in the highest net income?
a) FIFO
b) LIFO
c) Weighted Average
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