Exam (elaborations) Liberty University ACCT 370 Exam 3 Complete solution

Liberty University ACCT 370 Exam 3 Complete solution Liberty University ACCT 370 Exam 3 Complete solution 100% satisfied: solutions 1. Under IFRS, deferred taxes: 2. Which of the following items used for resolving intra-firm comparisons is not generally disclosed? 3. Which of the following does not properly describe the presentation by the lessor under ASC 842? 4. Which of the following statements is correct with respect to the use of fair value accounting for liabilities under IFRS? 5. Which of the following is not a true statement regarding the fair value accounting option? 6. The interest rate on a revolving loan will usually: 7. In a common size cash flow statement, all items are expressed as a percentage of: 8. Which of the following people outside the company do not demand financial statement information as a key input? Liberty University ACCT 370 Exam 3 Complete Solution 9. All financial statements: 10.Which of the following statements is not true? 11.Which of the following correctly describes the tax rates used under U.S. GAAP and IFRS for deferred taxes? 12. Analysts can use the deferred tax portion of the income tax note to the financial statements to undo differences in financial reporting choices across firms and thereby: 13.Which of the following is included in the definition of a "tax position"? 14.Which of the following statements does not correctly describe required income tax disclosures in the notes to the financial statements? 15. Sand engaged in operations at the start of 2018 and reported $550,000 in pre-tax book income for the year. Tax depreciation for Sand exceeded book depreciation by $50,000. The tax rate for 2018 was 30%, and Congress had enacted a tax rate of 20% for the years after 2018. 16. What is the deferred tax liability for Sand at December 31, 2018? 17.Which of the following is not a correct statement regarding deferred tax asset valuation allowance? 18. During its first three years of operations a company reported pretax book income of $1,000,000 in year 1, ($1,800,000) in year 2, and $3,000,000 in year 3. The income tax rate applicable to each of the years was 40%. 19. Assume that there weren’t any temporary differences and a valuation allowance was not necessary. 20. What is the amount of the deferred tax asset reported in the year 2 year-end balance sheet if the company elected a loss carryback? 21. A corporation that incurs a pre-tax operating loss must: 22. Financial accounting and reporting for deferred taxes: 23. The allocation of income tax expense across periods when book and tax income differ is called: 24. Under international accounting standard IAS 17, a lessee may classify some assets held under leases as investment property which allows the lessee to: 25. Under international accounting standard IAS 17, which of the following is a correct answer choice? 26.Under ASC 840, the lessor’s treatment of leases is guided according to Type I and Type II characteristics. Type II characteristics are linked to: 27. On January 1, 2019, Lessee Company entered into a five-year lease which required annual payments of $120,000. The first payment was due at the inception of the lease. The present value of the minimum lease payments to initially record the lease was $500,384; the applicable discount rate was 10%. Lessee Company treated the lease as a finance lease under ASC 842. What is the balance of Lessee Company’s lease liability immediately after the January 1, 2020 payment was made? 28. Under ASC 840, operating leases require note disclosure of minimum lease payments for the: 29.Executory costs of a lease are treated by the lessee as: 30. On January 1, 2018 Lessee Company entered into a five-year lease which required annual payments of $60,000. The first payment was due at the inception of the lease. The present value of the minimum lease payments to record the lease was $250,192; the applicable discount rate was 10%. Lessee Company treated the lease as a capital lease under ASC 840. What is the balance of Lessee Company’s lease liability as of December 31, 2018? 31. A lease is legally a/an _______ contract. 32. On January 1, 2018 when the effective interest rate was 12%, Philips Co. issued bonds with a maturity value of $200,000. The stated rate of interest is 12% and the bonds pay interest semiannually. Philips Co. paid $2,000 in bond issue costs on this date. 33. Under IFRS the bonds will be recorded on the January 1, 2018 balance sheet of Philips Co. at: 34. A contingent liability that is probable and can be reasonably estimated will immediately result in: 35. A hedged item can be any of the following except: 36. A variation of a forward contract that is traded daily in a market with many buyers and sellers and does not have a predetermined settlement date is a/an: 37. Special financial statement disclosures are required so that investors and analysts can understand all of the following except: 38. Investors need to review transactions involving debt-for-debt swaps carefully to ensure that there is an underlying: 39.Which of the following is not a valid statement regarding floating-rate debt? 40.Which of the following statements with respect to floating-rate debt is incorrect? 41. Hooker Company issues $200,000 of ten-year, 8% bonds to yield 10% on January 1, 2018. The bonds pay interest annually on December 31. The bonds were sold at a discount of $24,578. 42. The bond carrying amount at the end of 2018 is: 43.Which of the following would only be found in current liabilities on the balance sheet? 44.When an asset’s fair value has increased and a firm elects the revaluation method, 45. The allocation of the cost of a copyright to future periods of benefit is termed as: 46. An impairment loss is the difference between the carrying value of the asset and the: 47. According to U.S. GAAP, technological feasibility is established when an entity has completed all of the following activities necessary to establish that a product can be produced, except: 48.Which of the following statements about research and development costs is not valid? 49.Which one of the following items would be charged to the cost of a building rather than the cost of land? 50. Long-lived assets are: 51. Strategies to gain a competitive advantage include product differentiation and: 52.Which of the following is not considered an unusual or infrequently occurring item on an income statement? 53. Under ASC Topic 606 guidance for revenue recognition, which of the following factors is not a consideration when determining the transaction price of a contract? 54. 1 55. Accounting errors or irregularities can occur for which reasons? simple oversight. misapplication of GAAP. management exploitation of the flexibility in GAAP. 5567.. all of these answer choices are correct. 58. 2 59. The basic accounting equation may be expressed as: assets = liabilities - owners’ equity liabilities = assets + owners’ equity owners’ equity = assets - liabilities assets = owners’ equity - liabilities 6601.. 62. 3 63. big bath 6645.. 66. 4 67. The Canon Corporation sells ten copiers to the Title Company on October 15 for $40,000. Canon delivers the copiers to Title on October 20 and Title pays $16,000, agreeing to pay the balance on November 10. Under the accrual basis, how much revenue should Canon recognize in November? $0 $16,000 $24,000 $40,000 6689.. 70. 5 71. Contract Efficiency 7723.. 74. 6 75. Contracts must be: legally enforceable. in writing. communicated verbally. 7767.. drafted by an attorney. 78. 7 79. cookie jar 8801.. 82. 8 83. The costs of providing financial information is ultimately borne by: -management. -shareholders. -auditors. -professional analysts. 8845.. 86. 9 87. Disclosure Benefits: 8889.. 90. 1 91. Disclosure Costs: 9923.. 94. 1 95. Earnings management can occur through a variety of manipulations including: Manipulating accrual estimates to impact expenses. Misapplications of GAAP deemed immaterial on an account by account basis. Big bath restructuring charges. All of these answer choices are correct. 969.7. 98. 1 99. Example of competitive disadvantage cost 10100.1. 102. 1 103.Example of information collecting cost 10140.5. 106. 1 107.Example of litigation cost 10180.9. 110. 1 111. Examples of managing earnings: 11121.3. 114. 1 115.Examples of political cost 11161.7. 118. 1 119.Examples of variable consideration include all of the following except: penalties for not completing performing on a contract on time. bonuses for completing performance on a contract early. discounts on transaction prices. all of the answer choices are correct. 12102.1. 122. 1 123.For what reasons does management have incentive to meet analysts’ expectations? To build credibility with capital markets. To convey future earnings prospects to investors. To increase stock price. All of these answer choices are correct. 12142.5. 126. 1 127.GAAP 12182.9. 130. 2 131.Goal of GAAP 13123.3. 134.135.The goal of generally accepted accounting principles is to ensure that a 13163.7. 2 company’s financial statements: -do not contain any representation that could jeopardize management. -provide stockholders all of the information they need to assess management’s performance. -are accurate and free from fraud. -clearly represent its economic condition and performance of the company. 138. 2 139.Hargren Publishing offers its Accounting textbooks as e-texts through its online homework management system. Purchase of an access code provides the student with access to the e-text and online learning materials for six months. During that time, students have access to updates to the text and learning materials. Hargren should recognize revenue for purchases of access codes: at the end of the six-month access period. when they occur. over the six-month period during which the customer has access. at the beginning of the semester in which the student will use the access code. .. 142. 2 143.How do auditors use financial statements? .. 146. 2 147.How do creditors use financial statements? .. 150. 2 151.How do equity investors use financial statements? .. 154. 2 155.If consideration is received before a contract is identified and the consideration is nonrefundable, revenue may be recognized if: the contract has been terminated. goods have been delivered. there is no remaining obligation to transfer goods. any of these answer choices is correct. .. 158. 2 159.If the financial reporting environment were unregulated, disclosure would occur voluntarily: -as long as other companies in the reporting company’s industry voluntarily disclosed financial information. -only to analysts that the company believes will report favorably on the company’s prospects. -only when managers wanted to raise additional capital. -as long as the incremental benefits to the company from supplying financial information exceeded the incremental costs of providing the information. .. 162. 2 163.In accounting for revenue recognition under ASC Topic 606, revenue can be recognized before a contract exists when cash has been received and: Goods have already been delivered to a customer, and there is no further obligation for the seller to deliver goods or services. The cash has been received for goods identified to be delivered and the cash is refundable. The cash has been received for goods or services to be delivered and the cash is nonrefundable. .. Revenue should never be recognized before a contract exists. 166. 2 167.Incentive for managers to manage earnings: .. 170. 3 171.Income statements are classified into sections to: separate revenue recognized from deferred revenue. distinguish between sustainable and transitory income. separate real income from book income. distinguish between book income and taxable income. 17127.3. 174. 3 175.In the case of sales where the customer is billed before delivery of the goods, the seller should always recognize revenue before the products are delivered to the customer. the goods belong to the customer and revenue recognition is deferred until delivery. the seller may recognize revenue if control of the goods has been transferred to the customer even though physical delivery has not taken place. revenue will not be recognized until the goods are shipped to the customer. 17167.7. 178. 3 179.Investors and analysts must have certain capabilities regarding financial reporting which include: -an understanding of current financial reporting standards. 18108.1. -recognition that management selects the financial reporting standards used. -an ability to recognize that financial statement information reported is grounded in judgment as well as facts. -all of these answer choices are correct. 182. 3 183.The key accounting issue related to bundled products such as software licenses and technical support: Multiple Choice is the method of revenue recognition. is the amount of revenue to recognize over the life of the contract. depends on whether the customer is able to pay for the contracted services. concerns the amount of transaction price to allocate to each contract element. 18148.5. 186. 3 187.The new ASC Topic 606 for revenue recognition: addresses when and how revenue should be recognized in contracts that provide both goods and services to customers. eliminates both the percentage-of-completion method and the installment sales method of revenue recognition. will require companies to recognize a net liability contract position on all new contracts; revenue will then arise from increases in the net contract position over the life of the contract. .. is more rules based than are existing standards. 190. 3 191.The new ASC Topic 606 provides a model for revenue recognition that includes: five steps. four steps. three steps. two steps. .. 194. 3 195.A patient of Dr. Jones presents his Medicare card after his appointment. The total charge for the services was $100; however, Medicare will pay only $60 for this service and the patient is to pay $20. Acceptance of the patient’s Medicare insurance creates a contract: for payment of $100, regardless of what Medicare will pay. for $20 and an $80 discount or price concession. for payment of $80 and a $20 discount or price concession. for payment of $60 and a price concession of $40. .. 198. 4 199.The rationale behind the rules for multiple-step income statements is to subdivide the income in a manner that facilitates: cash flows. forecasting. .. tax return preparation. audits. 202. 4 203.Relevant financial information: -is free from bias and error. -is measured in a similar manner among different companies. -can be independently verified. -is capable of making a difference in a decision. .. 206. 4 207.The residual approach to allocate transaction prices to multiple performance obligations in a contract is appropriate when: The stand-along price of one or more of the goods or services is highly variable or uncertain. None of the goods and services included in the contract are not sold on a standalone basis. The stand-alone price of all of the goods or services is known. None of these. 20280.9. 210. 4 211.Revenue for goods to be sold under a consignment arrangement of a manufacturer and a retail store should be recognized by the manufacturer when: the manufacturer delivers the product to a retail store. the seller promises to pay the manufacturer. the goods are sold by the retail store. 21221.3. the seller receives payment for the goods. 214. 4 215.Supply of financial reporting is driven by: 21261.7. 218. 4 219.To achieve faithful representation, the financial information must be: -consistent, unbiased, and relevant. -relevant, comparable, and timely. -relevant, consistent, and timely. -complete, neutral, and free from material error. 22202.1. 222. 4 223.Under ASC Topic 606 guidance for revenue recognition, all of the following conditions must be met to account for a contract with a customer, except: the contract has commercial substance. collection is likely. each party’s rights are identified regarding goods or services to be exchanged. all parties to the contract have approved the contract. 22242.5. 226. 4 227.Voluntary disclosure should only occur when 22282.9. 230. 4 231.What are the four supporting accounting characteristics? 23223.3. 234. 5 235.What characteristics make F/S valuable? 23263.7. 238. 5 239.What is the difference between cash flow and accrual accounting? 24204.1. 242. 5 243.When financial statements are used by shareholders and investors to evaluate the performance of a company’s top executives it is referred to as the _____________ function of financial reports. -proxy. -fundamental. -technical. -stewardship. 24244.5. 246. 5 247.Which of the following are correct with respect to information contained in financial statements? -Information asymmetry occurs when management has access to more and better information than do people outside the company. -Financial statements cannot solve the issue of information asymmetry. -Financial statements help solve the issue of information asymmetry. -Financial statements help solve the issue of information asymmetry which is when management has access to more and better information than do people outside the company. 24284.9. 250. 5 251.Which of the following are primary qualitative characteristics of accounting information? Relevance and Timeliness. Relevance and Faithful Representation. Comparability and Timeliness. Verifiability and Understandability. 25225.3. 254. 5 255.Which of the following parties are responsible for the detection of errors and accounting irregularities in a company’s financial statements? external auditors. 25265.7. the SEC staff during their review process. internal audit staff and audit committee of the board of directors. all of these answer choices are correct. 258. 5 259.Which of the following statements best describes expenses? They are recorded in the accounting period when they are "earned" and become "measurable." They consist of amounts paid for consumable items and services rendered to the organization during the accounting period. They are the expired costs or assets "used up" during the accounting period. They consist of cash payments to employees during the period for services rendered. 26206.1. 262. 5 263.Which of the following statements is correct with respect to economic incentives to release financial information? -Because companies have an economic incentive to supply information investors want, regulatory groups have little influence over the amount and type of financial information that companies disclose. -Because financial disclosures are regulated, owners and managers have little economic incentive to supply the amount and type of financial information that will enable them to raise capital most cheaply. -Companies have an economic incentive to supply the information investors want in order to raise capital at the lowest possible cost. -Owners and managers do not have an economic incentive to supply the amount and type of financial information because it has no effect on the company’s ability to raise capital at the lowest cost. .. 266. 5 267.Which of the following statements is not correct regarding a company’s financial statements? -They may present a picture of the company at a moment in time. -They may describe changes that took place over a period of time . -They reflect economic events that affect the company. -They are comparable to the statements of other companies as all publicly held companies follow the very precise science of accounting. .. 270. 5 271.Which of the following statements is not true regarding revenue recognition regarding gift cards? "Breakage" refers to the unused portion of gift card balances. "Breakage" can only be recognized as revenue to the extent that it is probable a reversal will not be necessary. The amount received from the sale of gift cards is required to be recognized as revenue when the gift cards are sold. It is typical that a portion of gift card sales will go unused by customers. .. 274. 6 275.Which one of the following types of disclosure costs is the cost of disclosing the company’s pricing strategies? Political cost Litigation cost Competitive disadvantage cost Information collection, processing, and dissemination cost .. 278. 6 279.Which statement below is not correct with respect to earnings management? It is increasingly common because of the pressure to meet analysts’ expectations. More firms just beat rather than just miss the analyst expectations. .. More than 80% of CEOs surveyed indicated that reporting a profit is an important benchmark. More than 70% of CEOs surveyed indicated that beating consensus EPS is an important benchmark. 282. 6 283.Why are there tradeoffs with accounting rules and what is an example? .. 286. 6 287.Working capital accounts include: all assets. all assets and liabilities. current assets and all liabilities. current assets and current liabilities. .. 290. 6 291.Yashito Corporation sells cameras and accessories. The company’s newest model, popular with preteens, takes wallet-sized instant photos. The wholesale price for this camera is $50. In addition, the company sells carrying cases ($25), film cartridges ($15), and selfie lenses ($10) made especially for this camera. During the holiday season, Yashito offers the camera, film, carrying case, and selfie lens as a package for $75. For each package sold, the transaction price allocated to the camera is: $100. $75. $50. $37.50. .. 294.295.Accounting errors or irregularities can occur for which reasons? .. 2 A) simple oversight. B) misapplication of GAAP. C) management exploitation of the flexibility in GAAP. D) all of these answer choices are correct. 298. 3 299.Accounting treatment for changes in accounting principle are best described as: A) Changes in accounting principle that are only permitted when FASB issues a standard that revises GAAP. B) Changes in accounting principle that are always accounted for using the retrospective approach which requires only a restatement of prior years’ presented financial information. C) Changes in accounting principle that may require both a restatement of prior years’ financial information and the recording of a cumulative adjustment to retained earnings. D) Tax effects are ignored when reporting changes in accounting principles. .. 302. 4 303.Accrual accounting decouples measured earnings from operating cash inflows and outflows. .. 306. 5 307.Accumulated depreciation is a/an: A) expense account. B) liability account. C) contra-asset account. D) owners’ equity account. .. 310. 6 311.Adjusting entries are used in all but which of the following situations? A) Prepayments. B) Deferred Revenue and Expenses. C) Accrued Revenue and Expenses. D) Prepayments, Deferred Revenue, Accrued Expenses, Accrued Revenue. .. 314. 7 315.Adjusting entries must be made: A) to correct errors in the accounts. B) to reconcile the accounts to the budget. C) because auditing standards require them. D) because certain types of events will otherwise not be recorded in the accounts. .. 318. 8 319.Any increase in an asset may be offset by: A) a corresponding decrease in a liability. B) a decrease in some other asset account. C) a corresponding decrease in owner’ equity. D) an increase in another asset account. .. 322. 9 323.The basic accounting equation may be expressed as: A) assets = liabilities - owners’ equity B) liabilities = assets + owners’ equity C) owners’ equity = assets - liabilities D) assets = owners’ equity - liabilities .. 326. 1 327.The basic accounting equation may be expressed as assets = liabilities - owners’ equity. .. 330. 1 331.The best measure of a firm’s sustainable income is: A) income from continuing operations. B) income before income tax. C) income before unusual items and change in accounting principle. D) net income. .. 334. 1 335.Black and Decker decides to discontinue producing toasters in lieu of more versatile toaster ovens. In the process of discontinuing this line, the company disposes of the old production equipment and buys new equipment. The disposal .. of the old equipment would be reported in the income statement as: A) gain or loss on the sale of equipment as part of continuing operations. B) gain or loss on the sale of production equipment as part of cost of goods manufactured and sold. C) gain or loss on the disposal of discontinued business component. D) income from operation of a discontinued business component. 338. 1 339.The Canon Corporation sells ten copiers to the Title Company on October 15 for $40,000. Canon delivers the copiers to Title on October 20 and Title pays $16,000, agreeing to pay the balance on November 10. Under the accrual basis, how much revenue should Canon recognize in November? A) $0 B) $16,000 C) $24,000 D) $40,000 .. 342. 1 343.The Canon Corporation sells ten copiers to the Title Company on October 15 for $40,000. Canon delivers the copiers to Title on October 20 and Title pays $16,000, agreeing to pay the balance on November 10. Under the cash basis, how much revenue should Canon recognize in October? A) $0 B) $16,000 C) $24,000 D) $40,000 .. 346.347.Cash-basis accounting provides the most useful measure of future operating .. 1 performance. 350. 1 351.The change in equity of an entity during a period from transactions and other events from non-owner sources is known as: A) net income. B) net operating income. C) comprehensive income. D) net change in assets. .. 354. 1 355.The change in equity of an entity during a period from transactions and other events from non-owner sources is known as comprehensive income. .. 358. 1 359.A component of an entity may be a/an: A) reportable or operating segment. B) subsidiary. C) asset group. D) reportable or operating segment, subsidiary, or asset group. .. 362. 1 363.A cumulative effect of a change in an accounting principle is measured as: A) the difference between prior periods’ net income under the old method and what would have been reported if the new method had been used in the prior years. B) the after-tax difference between prior periods’ net income under the old method and what would have been reported if the new method had been used in the prior years. C) the difference between prior periods’ net income and current net income under the old method and what would have been reported if the new method had been used in the prior years and the current year. D) the after-tax difference between prior periods’ net income and current net .. income under the old method and what would have been reported if the new method had been used in the prior years and the current year. 366. 2 367.Current U.S. GAAP permits firms to display the components of other comprehensive income in which of the following formats? A) as a schedule appearing in the notes to the financial statements. B) in a two-statement approach, one in which net income comprises one statement and a second, which presents a separate statement of comprehensive income. C) as part of the statement of changes in stockholders’ equity. D) as a part of the statement of cash flows. .. 370. 2 371.A debit: A) increases Accounts Payable. B) increases Cost of Goods Sold. C) decreases Accounts Receivable. D) decreases Equipment. .. 374. 2 375.A debit does which of the following? A) Increases the value in an asset account. B) Increased the value in a contra-asset account. C) Decreases the value in a liability account. D) Increases the value in an asset account and also decreases the value in a liability account. .. 378. 2 379.The discontinued operations section of the income statement is comprised of which one of the following? A) Income from the operation of a discontinued business component and gain or loss from the disposal of the discontinued component. B) Income from the operation of a discontinued business component, net of tax, and gain or loss from the disposal of the discontinued component, net of tax. .. C) Income from the operation of a discontinued business component, net of tax, and gain or loss from the disposal of the discontinued component. D) Gain or loss from the disposal of the discontinued component, net of tax. 382. 2 383.Each set of EPS numbers includes separately reported numbers for income from continuing operations and the items that appear below it on the income statement. .. 386. 2 387.Earnings management can occur through a variety of manipulations including: A) Manipulating accrual estimates to impact expenses. B) Misapplications of GAAP deemed immaterial on an account by account basis. C) Big bath restructuring charges. D) All of these answer choices are correct. .. 390. 2 391.Entering the DR or CR amount in the appropriate left or right side of the affected T-account is called: A) posting. B) cross-referencing. C) journalizing. D) recording. .. 394. 2 395.The expense matching principle states that: A) Expenses are recognized when paid. B) All expenses are recognized when the corresponding revenue is recorded. C) Some expenses are recognized when the corresponding revenue is recognized and some are spread over time. D) Expenses are recognized when the invoice is received. .. 398. 2 399.For a disposal group to be considered held for sale, which of the following conditions are required to be met? A) Management has committed to a plan to see the component. .. B) The sale is probable and is expected to be completed within one year. C) The component is available for immediate sale in its present condition subject only to usual and customary terms for such sales. D) All of these conditions must be met. 402. 2 403.For each transaction, the dollar total of the debits must equal the dollar total of the credits. .. 406. 3 407.For what reasons does management have incentive to meet analysts’ expectations? A) To build credibility with capital markets. B) To convey future earnings prospects to investors. C) To increase stock price. D) All of these answer choices are correct. .. 410. 3 411.GAAP requires firms to report comprehensive income: A) at the end of the income statement. B) as one separate statement of comprehensive income. C) in the statement of changes in stockholders’ equity. D) in a statement that is displayed with the same prominence as other financial statements. .. 414. 3 415.GAAP requires that each set of EPS numbers includes separately reported numbers for all of the following except: A) special or unusual items. B) income from continuing operations. C) discontinued operations. D) net income. .. 418. 3 419.Gains and losses from continuing operations that are not typical recurring costs are presented as a separate line in the income from continuing operations section .. of the income statement. 422. 3 423.Hickory Furniture Company paid for the following costs during the month of May: Inventory purchases $ 40,000 Advertising costs 8,000 Delivery costs 2,000 Hickory sold $32,000 of the inventory and has agreed to pay warranty expenses for its customers. These are expected to be $1,600 and occur evenly over the next four months (i.e., starting in June). What is the amount of Hickory’s cash-basis expenses for the month of May? .. A) $33,600 B) $42,400 C) $50,000 D) $51,600 426. 3 427.Hickory Furniture Company paid for the following costs during the month of May: Inventory purchases $ 40,000 Advertising costs 8,000 Delivery costs 2,000 Hickory sold $32,000 of the inventory and has agreed to pay warranty expenses for its customers. These are expected to be $1,600 and occur evenly over the .. next four months (i.e., starting in June). What is the amount of Hickory’s May expenses when applying the matching principle? A) $33,600 B) $42,400 C) $43,600 D) $50,000 430. 3 431.Hickory Furniture Company paid for the following costs during the month of May: Inventory purchases $ 40,000 Advertising costs 8,000 Delivery costs 2,000 .. Hickory sold $32,000 of the inventory and has agreed to pay warranty expenses for its customers. These are expected to be $1,600 and occur evenly over the next four months (i.e., starting in June). What type of cost is the advertising expense? A) Product cost B) Traceable cost C) Inventory cost D) Period cost 434. 3 435.Income statements are classified into sections to: A) separate revenue recognized from deferred revenue. B) distinguish between sustainable and transitory income. C) separate real income from book income. D) distinguish between book income and taxable income. 43463.7. 438. 3 439.In its accrual-basis income statement for the year ended December 31, 2018, Ralph Company reported revenue of $2,565,000. Additional information was as follows: Accounts receivable 12/31/17 $ 418,500 Uncollectible accounts written off during 2018 17,200 Accounts receivable 12/31/18 44404.1. 391,700 Required: Under the cash basis of net income determination, how much should Ralph report as revenue for 2018? 442. 3 443.John Hamilton, D.D.S. keeps his accounting records on the cash basis. During 2018 Dr. Hamilton collected $220,000 in fees from his patients. At December 31, 2017, Dr. Hamilton had accounts receivable of $30,000. At December 31, 2018 Dr. Hamilton had accounts receivable of $35,000 and had collected deferred fee revenue of $8,000. Required: On the accrual basis, what was Dr. Hamilton’s patient service revenue for 2018? 44444.5. 446. 4 447.The matching principle requires that expenses be recognized: A) in the same period in which all the assets are used up. B) in the same period in which the revenue generated by these expenses is recognized. C) when the costs are paid by the entity. D) in the same period in which the revenue generated by these expenses is received. 44484.9. 450. 4 451.The matching principle says that expenses are matched to the revenue recognized during the period, not that revenue is matched to the period’s expenses. 45425.3. 454. 4 455.Misstatements of tax expense, improper restructuring charges, asset impairment charges and gains/losses related to acquisitions are which type of 45465.7. restatement? A) those related to revenue recognition B) items related to core expense issues C) items related to non-core expense issues D) reclassification and disclosure issues 458. 4 459.Net asset valuation and net income determination are inextricably intertwined. 46406.1. 462. 4 463.Net income recognition always increases: A) assets. B) net assets. C) liabilities. D) net liabilities. 46446.5. 466. 4 467.On the income statement, income from discontinued operations is shown: A) as a separate section of income from continuing operations. B) as an accounting principle change. C) without any income tax effect. D) net of taxes after income from continuing operations. .. 470. 4 471.Other Comprehensive Income (OCI) is used both in U.S. GAAP and IFRS. Which of the following statements is correct? A) As a general rule, U.S. GAAP allows more opportunities for managers to change balance sheet valuations of certain assets even when management has no intention to sell these assets. B) Changes in the valuation of property, plant, and equipment create a Revaluation Surplus used in both IFRS and U.S. GAAP. C) Both IFRS and U.S. GAAP require companies to report in other comprehensive income each period the valuation changes from changes in .. actuarial estimates affecting defined benefit pension plans. D) U.S. GAAP requires a separate statement of OCI to immediately follow the income statement in the financial reporting statement. 474. 4 475.Period costs would include costs like advertising or insurance where the linkage between these costs and individual sales is difficult to establish. .. 478. 4 479.The point within the operating cycle when the company’s net assets have increased is the point when revenue should be recognized. .. 482. 4 483.The rationale behind the rules for multiple-step income statements is to subdivide the income in a manner that facilitates: A) cash flows. B) forecasting. C) tax return preparation. D) audits. .. 486. 5 487.The real accounting issue in net income recognition is the: A) quantity of income recognized. B) type of income recognized. C) timing of the recognition. D) basis of net income recognition. .. 490. 5 491.Recent changes in ________ accounting standards require companies to group items within OCI based on ________: A) U.S. GAAP; whether they will be reclassified subsequently into net income or whether they will be subsequently reclassified into income when specific conditions are met. B) IFRS; whether they will be reclassified subsequently into net income or whether they will be subsequently reclassified into income when specific .. conditions are met. C) U.S. GAAP; their expected future categorization on the income statement into income from continuing operations and discontinued operations. D) IFRS; their expected future categorization on the income statement into income from continuing operations and discontinued operations. 494. 5 495.Restatements occur for a number of reasons. Which of the following is the most common type of restatement? A) those related to revenue recognition. B) items related to core expense issues. C) items related to non-core expense issues. D) reclassification and disclosure issues. .. 498. 5 499.Revenue is recognized when: A) a contract is signed by both parties. B) the seller completes performance required by an agreement. C) the buyer completes payment required under an agreement. D) the buyer accepts delivery and completes required payments. .. 502. 5 503.Royal, Inc. discovered that equipment purchased on January 1, 2018 for $300,000 will not last as long as originally estimated. The firm was depreciating the equipment at the rate of $40,000 per year with an estimated salvage value of $20,000. New estimates on January 1, 2021 indicate that the equipment will last a total of five years with no salvage value. How much should Royal, Inc. record as depreciation in 2021? A) $40,000 B) $60,000 C) $90,000 D) $120,000 50540.5. 506.507.Schlegel Department Store sells gift certificates—redeemable for store 50580.9. 5 merchandise—that expire one year after their issuance. Schlegel has the following information pertaining to its gift certificates sales and redemptions: Unredeemed certificates at 12/31/17 $ 90,000 2018 sales 400,000 2018 redemptions of prior year sales 60,000 2018 redemptions of current year sales 325,000 Schlegel’s experience indicates that 10% of gift certificates will not be redeemed. The company’s policy is to record revenue on gift certificates when they are redeemed or expire. Required: In its 2018 income statement, what amount should Schlegel report as gift certificate revenue? 510. 5 511.Selected unrealized gains (or losses) sometimes bypass the income statement and are reported as direct adjustments to a stockholders’ equity account. 51521.3. 514. 5 515.A special one-time charge resulting from corporate restructurings would be reported on the income statement as a/an: A) operating item before gross profit. B) special item in continuing operations. C) special item in continuing operations, shown net of tax. D) special item in discontinued operations, shown net of tax. 51561.7. 518. 5 519.The statement, "linkage between these costs and individual sales is difficult to establish," refers to: A) period costs. B) expired costs. C) product costs. D) traceable costs. 52502.1. 522. 5 523.T-account analysis can be used to gain insights into why accrual basis earnings and cash basis earnings differ and to: A) journalize future transactions. B) reconstruct transactions that have occurred during a given reporting period. C) post transactions that have occurred during a given reporting period. D) determine the current market price of common stock. 52542.5. 526. 6 527.) The Canon Corporation sells ten copiers to the Title Company on October 15 for $40,000. Canon delivers the copiers to Title on October 20 and Title pays $16,000, agreeing to pay the balance on November 10. Using the accrual basis, which one of the following entries would properly .. record Canon’s revenue recognition for October? A) DR Cash 40,000 CR Copier sales