C249 - Int. Accounting II

Debit cash $12,000; credit common stock $10,000; credit additional paid-in capital $2,000

Debit cash $12,000; debit additional paid-in capital $500; credit common stock $11,500

Debit cash $12,000; debit operating expenses $500; credit common stock $11,500

Debit cash $12,000; credit common stock $9,500; credit additional paid-in capital $2,500

To make the stock available for future re-issue

To evaluate the stock’s actual market value

To permanently retire the stock

To eliminate competition in the marketplace

Management control through voting rights

Basic ownership interest

Preferential payment of dividends

Guaranteed payment of dividends

Debit retained earnings for $325,000.

Debit retained earnings for $450,000.

Credit investments for $325,000.

Credit investments for $450,000.

A decrease of $3,000

An increase of $3,000

A decrease of $5,000

An increase of $5,000

$20,000

$50,000

$55,000

$100,000

Debit cash $15,000; debit paid-in capital – stock options $1,500; credit common stock $1,000; credit paid-in capital in excess of par $15,500

Debit cash $30,000; debit paid-in capital – stock options $3,000; credit common stock $2,000; credit paid-in capital in excess of par $31,000

Debit compensation expense $15,000; credit paid-in capital – stock options $15,000

Debit compensation expense $30,000; credit paid-in capital – stock options $30,000

$1.79

$2.03

$3.89

$4.06

$1,200,000

$1,7000,000

$2,400,000

$3,400,000

Increases and decreases in fair value are recorded under both GAAP and IFRS.

Decreases in fair value are recorded under both GAAP and IFRS, but only GAAP permits increases.

Decreases in fair value are recorded under both GAAP and IFRS, but only IFRS permits increases.

Increases in fair value are recorded under both GAAP and IFRS, but only GAAP permits reductions.

$1,742

$2,014

$2,989

$3,452

Debit cash $250; debit unrealized holding gain or loss-equity $2,000; credit equity investments $250; credit fair value adjustment (available-for-sale) $2,000
Debit cash $250; debit unrealized holding gain or loss-equity $2,000; credit dividend revenue $250; credit fair value adjustment (available-for-sale) $2,000
Debit cash $250; debit equity investments $1,000; credit dividend revenue $250; credit investment income $1,000
Debit cash $250; debit equity investments $1,000; credit equity investments $250; credit investment income $1,000

Debit cash $250; debit unrealized holding gain or loss-equity $2,000; credit dividend revenue $250; credit fair value adjustment (available-for-sale) $2,000

Debit cash $250; debit equity investments $1,000; credit dividend revenue $250; credit investment income $1,000

Debit cash $250; debit equity investments $1,000; credit equity investments $250; credit investment income $1,000

Equity method

Book value method

Fair value method

Current method

When transferring available-for-sale securities to held-to-maturity investments, record the investments on the transfer date at historical cost.

When transferring held-to-maturity investments to available-for-sale securities, record any gain or loss on the income statement.

When transferring held-to-maturity investments to available-for-sale securities, record any unrealized gain or loss in stockholders’ equity.

When transferring available-for-sale securities to held-to-maturity investments, record the investments on the future sale date at fair value.

Swap

Put Option

Call Option

Forward Contract

Debit cash; credit futures contracts

Debit cash; credit gain on futures contracts

Debit futures contracts; credit unrealized holding gain or loss - equity

Debit futures contracts; credit unrealized holding gain or loss - income

The party that is exposed to the majority risks and rewards of the variable interest entity

The party that holds more voting rights by stock ownership of the variable interest entity

The party that controls a majority of the managerial positions of the variable interest entity

The party that exerts control by performing day-to-day operations of the variable interest entity

Significant, observable inputs other than quoted prices are considered Level 1 measurements.

Impairment charges resulting from write-down to fair value are included in earnings for the period.

Fully depreciated fixed assets should be evaluated to determine disclosure as an impaired asset.

Quoted prices in active markets for identical assets are considered Level 3 measurements.

Under generally accepted accounting principles (GAAP), when changes in value on derivatives are used as cash flow hedges

Under International Financial Reporting Standards (IFRS), when changes in value on derivatives are used as cash flow hedges

Under generally accepted accounting principles (GAAP), when changes in value on derivatives are classified as trading

Under International Financial Reporting Standards (IFRS), when changes in value on derivatives are classified as trading

Revenue must be recognized immediately; gains can be recognized at any time.

Revenue results from ordinary operations; gains occur outside of ordinary operations.

Revenue results from selling products; gains result from permitting others to use enterprise assets.

Revenue results from the provision of services; gains result from the sale of inventory.

Debit inventory $10,000; credit accounts receivable $10,000

Debit sales revenue $10,000; credit accounts receivable $10,000

Debit sales returns and allowances $10,000; credit accounts receivable $10,000

Debit sales revenue $10,00; credit cost of goods sold $10,000

$500,000

$450,000

$250,000

$50,000

When the contract is completed

Amortized over the life of the contract

When a loss is first incurred

When the loss amount is estimated

Debit repossessed merchandise $8,000; debit loss on repossession $7,000; credit accounts receivable $15,000

Debit repossessed merchandise $15,000; debit deferred gross profit $4,000; credit accounts receivable 15,000; credit gain on repossession $4,000

Debit deferred gross profit $4,000; debit repossessed merchandise $11,000; credit accounts receivable $15,000

Debit deferred gross profit $4,000; debit repossessed merchandise $8,000; debit loss on repossession $3,000; credit accounts receivable $15,000

Both GAAP and IFRS define revenue as including income and gains.

Under GAAP, revenue recognition is principle-based; under IFRS, it is rules-based.

GAAP uses concepts such as realizable revenue and earned revenue; IFRS bases revenue on the probability of economic benefits.

GAAP has only one standard for revenue recognition; IFRS has multiple standards.

Expenses or losses are deductible before they are recognized in financial income, resulting in deferred tax asset.

Expenses or losses are deductible before they are recognized in financial income, resulting in deferred tax liability.

Revenues or gains are taxable after they are recognized in financial income, resulting in deferred tax asset.

Revenues or gains are taxable before they are recognized in financial income, resulting in deferred tax liability.

Debit income tax expense $500,000; credit allowance to reduce deferred tax asset to expected realizable value $500,000

Debit income tax expense $1,500,000; credit allowance to reduce deferred tax asset to expected realizable value $1,500,000

Debit income tax expense $1,500,000; credit deferred tax asset $1,500,000

Debit loss on unrealizable deferred tax asset $500,000; credit deferred tax asset $500,000

Stock-based compensation expense

Depletion of natural resources beyond historical cost

Accrued expense pending outcome of civil litigation

Depreciation using sum-of-the-years'-digits method

The average tax rate for periods with deferred tax balances

The effective tax rate enacted for the applicable future period

The marginal tax rate for the applicable future period

The estimated average tax rate over the period of deferral

$6,500

$8,000

$16,000

$20,000

Continuing operations, discontinued operations, extraordinary items, and prior period adjustments

Continuing operations, discontinued operations, profitable operations, and unprofitable operations

Current operations, extraordinary items, long term operations, and prior period adjustments

Extraordinary items, prior period adjustments, profitable operations, and unprofitable operations

Recognizing a contra expense account for future tax benefits attributable to a carryforward

Recognizing a short-term capital gain for refunds on the current year's tax return

Recognizing a current tax liability for taxes payable on the current year's tax return

Recognizing a current tax liability for expected future tax benefits

$12,000

$15,000

$16,000

$20,000

Noncurrent asset or liability

Stockholders’ equity

Current asset or liability

Tax expense

When the projected obligation is greater than the fair value of the plan assets

When the pension expense is less than the funding level

When the projected obligation is less than the fair value of the plan assets

When the pension expense is greater than the funding level

A defined contribution plan

A defined benefit plan

A contributory plan

A noncontributory plan

Vested benefit obligation

Projected benefit obligation

Accumulated benefit obligation

Non-vested benefit obligation

(ending balance – beginning balance) × net present cash value

(ending balance – beginning balance) × settlement interest rate

(ending balance – beginning balance) + (current investment income – contributions)

(ending balance – beginning balance) – (contributions – benefits paid)

Credit gain on pension assets; debit pension expense

Debit other comprehensive income; credit pension expense

Credit other comprehensive income; debit pension expense

Debit pension expense; credit gain on pension assets

As a current liability

As a noncurrent asset

As a current asset

As a noncurrent liability

Healthcare benefits are generally funded future liabilities; pension benefits are generally not funded.

Healthcare benefits are paid monthly; pensions are paid as used.

Healthcare benefit obligations are generally uncapped; pensions are a well-defined obligation.

Healthcare benefits are reasonably predictable; pensions vary over geography and time.

Under IFRS, they are recognized directly to income.

Under GAAP, they remain in other comprehensive income.

Under GAAP, they are amortized over their remaining service lives by using the corridor approach, from accumulated other comprehensive income into income.

Under IFRS, they are amortized over their remaining service lives by using the corridor approach, from other comprehensive income or equity into income.

Debit leased equipment $80,000; credit lease liability $80,000

Debit leased equipment $62,465; credit lease liability $62,465

Debit leased equipment $80,000; credit lease liability $74,900; credit interest payable $5,100

Debit leased equipment $74,900; credit lease liability $62,465; credit interest payable $12,435

Debit lease liability $14,980; debit interest payment $ 8,000; credit cash $22,980

Debit rent expense $14,980; credit cash $14,980

Debit lease liability $14,980; credit cash $14,980

Debit leased equipment $14,980; credit accumulated depreciation $14,980

A direct-financing lease is for a shorter period than a sales-type lease.

A direct-financing lease involves a dealer’s profit; a sales-type lease does not.

A sales-type lease is for a shorter period than a direct-financing lease.

A sales-type lease involves a dealer’s profit; a direct-financing lease does not.

$72,850

$75,000

$77,850

$80,000

Guaranteed residual value

Lessor’s internal direct costs

Unguaranteed residual value

Lessor’s internal indirect costs

The fair market value of the asset at the end of the lease

The book value of the asset at the end of the lease

An amount determined at the beginning of the lease that will be due to the lessor at the end of the lease

An amount determined at the end of the lease to be due to the lessor

Specific and separate descriptions of the nature of each individual leasing arrangement

Descriptions and amounts of leased assets by major balance sheet classification and related liabilities

The names and addresses of individual lessors for whom a current lease exists

The amount of equity included in all leased assets under current lease agreements

The present value of the rental payments are 10% or less of the fair value of the asset.

The lease term is less than 10% of the useful life of the asset.

The lease includes a bargain-purchase option.

The book value of the asset is less than the present value of the rental payments.

GAAP uses additional criteria for the lessor such as collectability of payments and additional cost.

GAAP requires the lessee to record the lease at the higher of the implicit rate and the incremental rate.

GAAP requires that the total net present value of lease payments be disclosed for future years.

GAAP is more general in its approach to determining whether a lease arrangement transfers reward of ownership.

Principle

Estimate

Entity

Basis

Deferring marketing costs that were previously expensed but are now material

Adopting the percentage-of-completion method of recognizing the revenue of newly acquired contracts

Changing from the average cost method of inventory valuation to the first-in, first-out (FIFO) method of inventory valuation

Changing the method used to determine the salvage values of fixed assets for the purpose of reporting depreciation expense

$10,667

$12,266

$13,333

$16,154

The effect of the change on cash flows for all reported years

The effect of the change on net income for current and subsequent years

The effect of the change on income tax payable for the current year

The effect of the change on earnings per share for the current year

Net income

Rent expense

Current liabilities

Retained earnings

The impracticality exception applies to the correction of errors.

The impracticality exception applies to changes in accounting principles.

Companies must report direct effects of accounting policy changes retrospectively.

Companies must report indirect effects of accounting policy changes in the current period.

Current cash flows

Operating cash flows

Investing cash flows

Financing cash flows

Revenues and expenses

Purchases and sales of long-term assets

Loan payments

Purchases and sales of current assets

Cash from operations increases compared to net income.

Cash from operations decreases compared to net income.

Cash from operations is equal to net income.

Cash from operations is equal to the change in inventory value.

An increase under the direct method, and a decrease under the indirect method

An increase under the direct method, and an increase under the indirect method

A decrease under the direct method, and an increase under the indirect method

A decrease under the direct method, and a decrease under the indirect method

Common stock

Depreciation

Wages

Sales

$91,000

$96,000

$119,000

$124,000

IFRS offers multiple options; GAAP dictates that taxes and interest must be reported as operating activities and dividends must be reported as financing activities.

IFRS offers multiple options; GAAP dictates that interest and dividends must be reported as financing activities and taxes must be reported as operating activities.

GAAP offers multiple options; IFRS dictates that taxes and interest must be reported as operating activities and dividends must be reported as financing activities.

GAAP offers multiple options; IFRS dictates that interest and dividends must be reported as financing activities and taxes must be reported as operating activities.

Liquidity ratio

Activity ratio

Profitability ratio

Coverage

Forecasts provide expected results; projections provide possible results.

Forecasts provide possible results; projections provide expected results.

Forecasts are created by external analysts; projections are created by company management.

Forecasts are created by company management; projections are created by external analysts.

7.14

8.00

8.33

9.09

Horizontal analysis

Vertical analysis

Percentage analysis

Ratio analysis

Revenues from transactions with other operating segments if the revenue is included in calculations of the operating segment’s profit or loss

The allocation of joint, common, and company-wide costs incurred for the benefit of more than one operating segment

All depreciation, depletion, and amortization expenses

Revenue per customer for each customer from which 5% or more of the total company revenue is derived

Cash flows generated by reductions in inventory

Most profitable and least profitable inventory items

Pledges of inventory as collateral

Recent purchases and sales of inventory items

Ignore the costs for the interim periods.

Include the budgeted amounts until the final amounts are known.

Estimate the costs and their allocation to interim periods.

Expense the costs in the current interim period.

Unqualified

Qualified

Adverse

Exception

Independent auditor

Internal auditor

Corporate accounting department

Corporate management

Every three months under GAAP; every four months under IFRS

Every three months under GAAP; every six months under IFRS

Every four months under GAAP; every three months under IFRS

Every six months under GAAP; every three months under IFRS