ACC 423 Final Exam Version 1&2Follow the link below to purchase the Examhttp://www.homeworkarena.com/acc-423-final-exam-version-1-2Visit Website: http://www.homeworkarena.com/Please contact us for more Tutorial & Help(climaxbegin@gmail.com)

1) Proceeds from an issue of debt securities having stock warrants shouldNOT be allocated between debt and equity features whenA. the allocation would result in a discount on the debt securityB. the warrants issued with the debt securities are nondetachableC. exercise of the warrants within the next few fiscal periods seems remoteD. the market value of the warrants is NOT readily available2) The conversion of preferred stock may be recorded by theA. market value methodB. par value methodC. book value methodD. incremental method3) The conversion of preferred stock into common stock requires that anyexcess of the par value of the common shares issued over the carryingamount of the preferred being converted should beA. treated as a prior period adjustmentB. treated as a direct reduction of retained earningsC. reflected currently in income as an extraordinary itemD. reflected currently in income, but NOT as an extraordinary item4) A primary source of stockholders equity isA. contributions by stockholdersB. both income retained by the corporation and contributions bystockholdersC. appropriated retained earningsD. income retained by the corporation5) Stockholders equity is generally classified into two major categories:A. retained earnings and unappropriated capitalB. earned capital and contributed capitalC. appropriated capital and retained earningsD. contributed capital and appropriated capital6) When a corporation issues its capital stock in payment for services, theleast appropriate basis for recording the transaction is theA. market value of the shares issuedB. Any of these provides an appropriate basis for recording the transactionC. par value of the shares issuedD. market value of the services received7) Treasury shares areA. shares held as an investment by the treasurer of the corporationB. issued but NOT outstanding sharesC. shares held as an investment of the corporationD. issued and outstanding shares8) Gains on sales of treasury stock (using the cost method) should becredited toA. paid-in capital from treasury stockB. other incomeC. capital stockD. retained earnings9) How should a gain from the sale of treasury stock be reflected whenusing the cost method of recording treasury stock transactions?A. As ordinary earnings shown on the income statementB. As an extraordinary item shown on the income statementC. As paid-in capital from treasury stock transactionsD. As an increase in the amount shown for common stock10) In computing earnings per share, the equivalent number of shares ofconvertible preferred stock are added as an adjustment to thedenominator (number of shares outstanding). If the preferred stock iscumulative, which amount should then be added as an adjustment to thenumerator (net earnings)?A. Annual preferred dividendB. Annual preferred dividend divided by the income tax rateC. Annual preferred dividend times (one minus the income tax rate)D. Annual preferred dividend times the income tax rate11) When computing diluted earnings per share, convertible bonds areA. ignoredB. assumed converted only if they are dilutiveC. assumed converted whether they are dilutive or antidilutiveD. assumed converted only if they are antidilutive12) What effect will the acquisition of treasury stock have on stockholdersequity and earnings per share, respectively?A. Decrease and no effectB. Increase and decreaseC. Increase and no effectD. Decrease and increase13) On May 1, 2007, Kent Corp. declared and issued a 10% common stockdividend. Prior to this dividend, Kent had 100,000 shares of $1 par valuecommon stock issued and outstanding. The fair value of Kent s commonstock was $20 per share on May 1, 2007. As a result of this stock dividend,Kents total stockholders equityA. did NOT changeB. increased by $200,000C. decreased by $10,000D. decreased by $200,00014) How would the declaration and subsequent issuance of a 10% stockdividend by the issuer affect each of the following when the market valueof the shares exceeds the par value of the stock?Additional Common Stock | Paid-in CapitalA. Increase | IncreaseB. No effect | No effectC. Increase | No effectD. No effect | Increase15) At its date of incorporation, Wilson, Inc. issued 100,000 shares of its$10 par common stock at $11 per share. During the current year, Wilsonacquired 20,000 shares of its common stock at a price of $16 per share andaccounted for them by the cost method. Subsequently, these shares werereissued at a price of $12 per share. There have been no other issuances oracquisitions of its own common stock. What effect does the reissuance ofthe stock have on the following accounts?Retained Earnings | Additional Paid-in CapitalA. No effect | No effectB. Decrease | DecreaseC. Decrease | No effectD. No effect | Decrease16) Which of the following is correct about the effective-interest method ofamortization?A. The effective-interest method produces a constant rate of return on thebook value of the investment from period to period.B. The effective interest method applied to investments in debt securities isdifferent from that applied to bonds payable.C. Amortization of a premium decreases from period to period.D. Amortization of a discount decreases from period to period17) An unrealized holding loss on a companys available-for-sale securitiesshould be reflected in the current financial statements asA. other comprehensive income and deducted in the equity section of thebalance sheet.B. an extraordinary item shown as a direct reduction from retained earningsC. a note or parenthetical disclosure onlyD. a current loss resulting from holding securities18) An unrealized holding gain on a companys available-for-salesecurities should be reflected in the current financial statements asA. other comprehensive income and included in the equity section of thebalance sheet.B. an extraordinary item shown as a direct increase to retained earningsC. a note or parenthetical disclosure onlyD. a current gain resulting from holding securities19) Investments in debt securities should be recorded on the date ofacquisition atA. face value plus brokerage fees and other costs incident to the purchaseB. lower of cost or marketC. market value plus brokerage fees and other costs incident to thepurchaseD. market value20) Securities which could be classified as held-to-maturity areA. warrantsB. redeemable preferred stockC. municipal bondsD. treasury stock21) Which of the following is NOT a debt security?A. Commercial paperB. Convertible bondsC. Loans receivableD. All of these are debt securities22) An investor has a long-term investment in stocks. Regular cashdividends received by the investor are recorded asFair Value Method | Equity MethodA. A reduction of the investment | A reduction of the investmentB. Income | IncomeC. Income | A reduction of the investmentD. A reduction of the investment | Income23) When a company holds between 20% and 50% of the outstandingstock of an investee, which of the following statements applies?A. The investor should use the equity method to account for its investmentunless circum-stances indicate that it is unable to exercise significantinfluence over the investeeB. The investor should always use the equity method to account for itsinvestmentC. The investor must use the fair value method unless it can clearly demonstratethe ability to exercise significant influence over the investeeD. The investor should always use the fair value method to account for itsinvestment24) Bista Corporation declares and distributes a cash dividend that is aresult of current earnings. How will the receipt of those dividends affectthe investment account of the investor under each of the followingaccounting methods?Fair Value Method | Equity MethodA. Increase | DecreaseB. No Effect | DecreaseC. No Effect | No EffectD. Decrease | No Effect25) Debt securities that are accounted for at amortized cost, NOT fairvalue, areA. trading debt securitiesB. held-to-maturity debt securitiesC. available-for-sale debt securitiesD. never-sell debt securities26) Equity securities acquired by a corporation which are accounted for byrecognizing unrealized holding gains or losses as other comprehensiveincome and as a separate component of stockholders equity areA. trading securities where a company has holdings of less than 20%B. available-for-sale securities where a company has holdings of less than20%C. securities where a company has holdings of between 20% and 50%D. securities where a company has holdings of more than 50%27) Use of the effective-interest method in amortizing bond premiums anddiscounts results inA. a smaller amount of interest income over the life of the bond issue than wouldresult from use of the straight-line methodB. a greater amount of interest income over the life of the bond issue than wouldresult from use of the straight-line methodC. a varying amount being recorded as interest income from period toperiodD. a variable rate of return on the book value of the investment28) All of the following are characteristics of a derivative financialinstrument EXCEPT the instrumentA. All of these are characteristicsB. has one or more underlyings and an identified payment provisionC. requires a large investment at the inception of the contractD. requires or permits net settlement29) The accounting for fair value hedges records the derivative at itsA. historical costB. amortized costC. carrying valueD. fair value30) All of the following statements regarding accounting for derivativesare correct EXCEPT thatA. gains and losses resulting from hedge transactions are reported in differentways, depending upon the type of hedgeB. they should be recognized in the financial statements as assets and liabilitiesC. they should be reported at fair valueD. gains and losses resulting from speculation should be deferred31) Taxable income of a corporation differs from pretax financial incomebecause ofPermanent Differences | Temporary DifferencesA. Yes | NoB. No | NoC. No | YesD. Yes | Yes32) The rationale for interperiod income tax allocation is toA. adjust income tax expense on the income statement to be in agreement withincome taxes payable on the balance sheetB. recognize a tax asset or liability for the tax consequences of temporarydifferences that exist at the balance sheet dateC. recognize a distribution of earnings to the taxing agencyD. reconcile the tax consequences of permanent and temporary differencesappearing on the current years financial statements33) Interperiod income tax allocation causesA. tax expense in the income statement to be presented with the specificrevenues causing the taxB. tax expense shown on the income statement to equal the amount ofincome taxes payable for the current year plus or minus the change in thedeferred tax asset or liability balances for the year.C. tax expense shown in the income statement to bear a normal relation to thetax liabilityD. tax liability shown in the balance sheet to bear a normal relation to theincome before tax reported in the income statement34) At the December 31, 2007 balance sheet date, Garth BrooksCorporation reports an accrued receivable for financial reportingpurposes but NOT for tax purposes. When this asset is recovered in 2008, afuture taxable amount will occur andA. Garth will record a decrease in a deferred tax liability in 2008B. pretax financial income will exceed taxable income in 2008C. Garth will record an increase in a deferred tax asset in 2008D. total income tax expense for 2008 will exceed current tax expense for 200835) Which of the following differences would result in future taxableamounts?A. Revenues or gains that are taxable before they are recognized in financialincomeB. Expenses or losses that are tax deductible after they are recognized infinancial incomeC. Expenses or losses that are tax deductible before they are recognized infinancial incomeD. Revenues or gains that are recognized in financial income but are neverincluded in taxable income36) Which of the following are temporary differences that are normallyclassified as expenses or losses that are deductible after they arerecognized in financial income?A. Product warranty liabilitiesB. Advance rental receiptsC. Fines and expenses resulting from a violation of lawD. Depreciable property37) In a defined-contribution plan, a formula is used thatA. ensures that pension expense and the cash funding amount will be differentB. defines the benefits that the employee will receive at the time of retirementC. ensures that employers are at risk to make sure funds are available atretirementD. requires an employer to contribute a certain sum each period based onthe formula38) In accounting for a defined-benefit pension planA. the employers responsibility is simply to make a contribution each yearbased on the formula established in the planB. an appropriate funding pattern must be established to ensure thatenough monies will be available at retirement to meet the benefitspromisedC. the liability is determined based upon known variables that reflect futuresalary levels promised to employeesD. the expense recognized each period is equal to the cash contribution39) Which of the following is NOT a characteristic of a defined-contributionpension plan?A. The benefits to be received by employees are defined by the terms of theplanB. The employers contribution each period is based on a formulaC. The benefit of gain or the risk of loss from the assets contributed to thepension fund are borne by the employeeD. The accounting for a defined-contribution plan is straightforward anduncomplicated40) In accounting for a pension plan, any difference between the pensioncost charged to expense and the payments into the fund should bereported asA. a charge or credit to unrealized appreciation and depreciationB. an offset to the liability for prior service costC. accrued or prepaid pension costD. an accrued actuarial liability41) The projected benefit obligation is the measure of pension obligationthatA. is NOT sanctioned under generally accepted accounting principles forreporting the service cost component of pension expenseB. is required to be used for reporting the service cost component ofpension expenseC. requires pension expense to be determined solely on the basis of the planformula applied to years of service to date and based on existing salary levelsD. requires the longest possible period for funding to maximize the taxdeduction42) The relationship between the amount funded and the amount reportedfor pension expense is as follows:A. pension expense may be greater than, equal to, or less than the amountfundedB. pension expense must equal the amount fundedC. pension expense will be less than the amount fundedD. pension expense will be more than the amount funded43) On January 1, 2008, Pratt Corp. adopted a defined-benefit pensionplan. The plans service cost of $300,000 was fully funded at the end of2008. Prior service cost was funded by a contribution of $120,000 in 2008.Amortization of prior service cost was $48,000 for 2008. What is theamount of Pratts prepaid pension cost at December 31, 2008?A. $180,000B. $72,000C. $120,000D. $168,00044) Reser Corp., a company whose stock is publicly traded, provides anoncontributory defined-benefit pension plan for its employees. Thecompanys actuary has provided the following information for the yearended December 31, 2008:Projected benefit obligation$600,000Accumulated benefit obligation525,000Fair value of plan assets825,000Service cost240,000Interest on projected benefit obligation24,000Amortization of unrecognized prior service cost60,000Expected and actual return on plan assets82,500The market-related asset value equals the fair value of plan assets. Priorcontributions to the defined-benefit pension plan equaled the amount ofnet periodic pension cost accrued for the previous year end. Nocontributions have been made for 2008 pension cost. In its December 31,2008 balance sheet, Reser should report an accrued pension cost ofA. $217,500B. $406,500C. $324,000.D. $241,50045) Effective January 1, 2007, Quayle Co. established a defined-benefit planwith no retro-active benefits. The first of the required equal annualcontributions was paid on December 31, 2007. A 10% discount rate wasused to calculate service cost and a 10% rate of return was assumed forplan assets. All information on covered employees for 2007 and 2008 isthe same. How should the service cost for 2008 compare with 2007, andshould the 2007 balance sheet report an accrued or a prepaid pensioncost?Service Cost for 2008 Compared to 2007 | Pension Cost Reported on the2007 Balance SheetA. Greater than | PrepaidB. Equal to | AccruedC. Equal to | PrepaidD. Greater than | Accrued46) On January 1, 2005, Foley Corporation acquired machinery at a cost of$250,000. Foley adopted the double-declining balance method ofdepreciation for this machinery and had been recording depreciation overan estimated useful life of ten years, with no residual value. At thebeginning of 2008, a decision was made to change to the straight-linemethod of depreciation for the machinery. The depreciation expense to berecorded for the machinery in 2008 is (round to the nearest dollar)A. $25,000B. $25,600C. $18,286D. $22,85747) During 2008, a construction company changed from the completedcontract method to the percentage-of-completion method for accountingpurposes but NOT for tax purposes. Gross profit figures under bothmethods for the past three years appear below:Completed-ContractPercentage-of-Completion2006$ 475,000$ 800,0002007625,000950,0002008700,0001,050,000$1,800,000$2,800,000Assuming an income tax rate of 40% for all years, the effect of thisaccounting change on prior periods should be reported by a credit ofA. $390,000 on the 2008 income statementB. $600,000 on the 2008 income statementC. $390,000 on the 2008 retained earnings statementD. $600,000 on the 2008 retained earnings statement48) Accrued salaries payable of $51,000 were NOT recorded at December31, 2007. Office supplies on hand of $24,000 at December 31, 2008 wereerroneously treated as expense instead of supplies inventory. Neither ofthese errors was discovered nor corrected. The effect of these two errorswould causeA. 2007 net income and December 31, 2007 retained earnings to be understated$51,000 eachB. 2008 net income to be understated $75,000 and December 31, 2008retained earnings to be understated $24,000C. 2008 net income and December 31, 2008 retained earnings to be understated$24,000 eachD. 2007 net income to be overstated $27,000 and 2008 net income to beunderstated $24,00049) The estimated life of a building that has been depreciated 30 years ofan originally estimated life of 50 years has been revised to a remaining lifeof 10 years. Based on this information, the accountant shouldA. depreciate the remaining book value over the remaining life of the assetB. continue to depreciate the building over the original 50-year lifeC. adjust accumulated depreciation to its appropriate balance through retainedearnings, based on a 40-year life, and then depreciate the adjusted book value asthough the estimated life had always been 40 yearsD. adjust accumulated depreciation to its appropriate balance, through netincome, based on a 40-year life, and then depreciate the adjusted book value asthough the estimated life had always been 40 years50) Which type of accounting change should always be accounted for incurrent and future periods?A. Change in reporting entityB. Change in accounting principleC. Correction of an errorD. Change in accounting estimate51) When a company decides to switch from the double-declining balancemethod to the straight-line method, this change should be handled as aA. change in accounting estimateB. change in accounting principleC. correction of an errorD. prior period adjustmentACC 423 Final Exam Version 2ACC 423 FINAL EXAM TEST1) When the cash proceeds from a bond issued with detachable stock warrants exceedthe sum of the par value of the bonds and the fair market value of the warrants, theexcess should be credited toA. a liability account.B. retained earnings.C. premium on bonds payable.D. additional paid-in capital from stock warrants.2) The conversion of preferred stock into common stock requires that any excess of thepar value of the common shares issued over the carrying amount of the preferred beingconverted should beA. treated as a prior period adjustment.B. reflected currently in income as an extraordinary item.C. treated as a direct reduction of retained earnings.D. reflected currently in income, but NOT as an extraordinary item3) When convertible debt is retired by the issuer, any material difference between thecash acquisition price and the carrying amount of the debt should beA. treated as a prior period adjustment.B. reflected currently in income as an extraordinary item.C. treated as an adjustment of additional paid-in capital.D. reflected currently in income, but NOT as an extraordinary item4) When a corporation issues its capital stock in payment for services, the leastappropriate basis for recording the transaction is theA. market value of the shares issued.B. par value of the shares issued.C. Any of these provides an appropriate basis for recording the transaction.D. market value of the services received.5) The accounting problem in a lump sum issuance is the allocation of proceedsbetween the classes of securities An acceptable method of allocation is theA. incremental method.B. proportional method.C. either the proportional method or the incremental method.D. pro forma method.6) Which of the following represents the total number of shares that a corporation mayissue under the terms of its charter?A. unissued sharesB. issued sharesC. outstanding sharesD. authorized shares7) How should a gain from the sale of treasury stock be reflected when using the costmethod of recording treasury stock transactions?A. As an increase in the amount shown for common stock.B. As paid-in capital from treasury stock transactions.C. As an extraordinary item shown on the income statement.D. As ordinary earnings shown on the income statement.8) Treasury shares areA. issued and outstanding shares.B. shares held as an investment by the treasurer of the corporation.C. issued but NOT outstanding shares.D. shares held as an investment of the corporation.9) When treasury stock is purchased for more than the par value of the stock and thecost method is used to account for treasury stock, what account(s) should be debited?A. Treasury stock for the purchase price.B. Treasury stock for the par value and paid-in capital in excess of par for the excess of thepurchase price over the par value.C. Treasury stock for the par value and retained earnings for the excess of the purchase priceover the par value.D. Paid-in capital in excess of par for the purchase price.10) When computing diluted earnings per share, convertible bonds areA. assumed converted only if they are antidilutive.B. ignored.C. assumed converted only if they are dilutive.D. assumed converted whether they are dilutive or antidilutive.11) In computing earnings per share, the equivalent number of shares of convertiblepreferred stock are added as an adjustment to the denominator (number of sharesoutstanding)If the preferred stock is cumulative, which amount should then be addedas an adjustment to the numerator (net earnings)?A. Annual preferred dividend times the income tax rateB. Annual preferred dividendC. Annual preferred dividend divided by the income tax rateD. Annual preferred dividend times (one minus the income tax rate)12) Antidilutive securitiesA. include stock options and warrants whose exercise price is less than the average marketprice of common stock.B. should be included in the computation of diluted earnings per share but NOT basic earningsper share.C. should be ignored in all earnings per share calculations.D. are those whose inclusion in earnings per share computations would cause basic earningsper share to exceed diluted earnings per share13) At its date of incorporation, Wilson, Inc issued 100,000 shares of its $10 parcommon stock at $11 per share During the current year, Wilson acquired 20,000 sharesof its common stock at a price of $16 per share and accounted for them by the costmethod Subsequently, these shares were reissued at a price of $12 per share Therehave been no other issuances or acquisitions of its own common stock What effect doesthe reissuance of the stock have on the following accounts?Retained Earnings |Additional Paid-in CapitalA. Decrease | No effectB. Decrease |DecreaseC. No effect | No effectD. No effect |Decrease14) A corporation declared a dividend, a portion of which was liquidatingHow wouldthis distribution affect each of the following?Additional Paid-inCapital | Retained EarningsA. No effect |DecreaseB. Decrease | No effectC. No effect | No effectD. Decrease |Decrease15) How would the declaration and subsequent issuance of a 10% stock dividend bythe issuer affect each of the following when the market value of the shares exceeds thepar value of the stock?Additional Common Stock | Paid-in CapitalA. Increase | No effectB. No effect | No effectC. Increase | IncreaseD. No effect | Increase16) A reclassification adjustment is reported in theA. statement of comprehensive income as other comprehensive income.B. income statement as an Other Revenue or Expense.C. statement of stockholders equity.D. stockholders equity section of the balance sheet.17) Which of the following is correct about the effective-interest method ofamortization?A. Amortization of a premium decreases from period to period.B. The effective interest method applied to investments in debt securities is different fromthat applied to bonds payable.C. The effective-interest method produces a constant rate of return on the book value ofthe investment from period to period.D. Amortization of a discount decreases from period to period.18) When investments in debt securities are purchased between interest paymentdates, preferably theA. accrued interest is debited to Interest Revenue.B. securities account should include accrued interest.C. accrued interest is debited to Interest Receivable.D. accrued interest is debited to Interest Expense.19) When an investors accounting period ends on a date that does NOT coincide withan interest receipt date for bonds held as an investment, the investor mustA. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for thetotal amount of interest to be received at the next interest receipt date.B. make an adjusting entry to debit Interest Receivable and to credit Interest Revenuefor the amount of interest accrued since the last interest receipt date.C. do nothing special and ignore the fact that the accounting period does NOT coincide withthe bonds interest period.D. notify the issuer and request that a special payment be made for the appropriate portion ofthe interest period.20) Which of the following is NOT a debt security?A. Loans receivableB. Convertible bondsC. All of these are debt securities.D. Commercial paper21) Investments in debt securities should be recorded on the date of acquisition atA. market value.B. face value plus brokerage fees and other costs incident to the purchase.C. lower of cost or market.D. market value plus brokerage fees and other costs incident to the purchase.22) When a company holds between 20% and 50% of the outstanding stock of aninvestee, which of the following statements applies?A. The investor should use the equity method to account for its investment unlesscircum-stances indicate that it is unable to exercise significant influence over theinvesteeB. The investor should always use the fair value method to account for its investment.C. The investor should always use the equity method to account for its investment.D. The investor must use the fair value method unless it can clearly demonstrate the ability toexercise significant influence over the investee23) An investor has a long-term investment in stocks Regular cash dividends receivedby the investor are recorded asFair Value Method | Equity MethodA. A reduction of the investment |A reduction of the investmentB. A reduction of the investment | IncomeC. Income | IncomeD. Income |A reduction of the investment24) BynerCorporation accounts for its investment in the common stock ofYountCompany under the equity methodBynerCorporation should ordinarily record acash dividend received from Yount asA. additional paid-in capital.B. dividend income.C. a reduction of the carrying value of the investment.D. an addition to the carrying value of the investment25) Use of the effective-interest method in amortizing bond premiums and discountsresults inA. a varying amount being recorded as interest income from period to period.B. a smaller amount of interest income over the life of the bond issue than would result fromuse of the straight-line method.C. a greater amount of interest income over the life of the bond issue than would result fromuse of the straight-line method.D. a variable rate of return on the book value of the investment.26) Held-to-maturity securities are reported atA. acquisition cost plus amortization of a discount.B. fair value.C. acquisition cost.D. acquisition cost plus amortization of a premium.27) Debt securities acquired by a corporation which are accounted for by recognizingunrealized holding gains or losses and are included as other comprehensive incomeand as a separate component of stockholders equity areA. trading debt securities.B. never-sell debt securities.C. held-to-maturity debt securitiesD. available-for-sale debt securities28) The accounting for fair value hedges records the derivative at itsA. carrying value.B. historical cost.C. amortized cost.D. fair value.29) Gains or losses on cash flow hedges areA. recorded in equity, as part of other comprehensive income.B. reported directly in retained earnings.C. ignored completely.D. reported directly in net income.30) All of the following statements regarding accounting for derivatives are correctEXCEPT thatA. gains and losses resulting from hedge transactions are reported in different ways,depending upon the type of hedgeB. they should be recognized in the financial statements as assets and liabilitiesC. they should be reported at fair valueD. gains and losses resulting from speculation should be deferred31) The rationale for interperiod income tax allocation is toA. recognize a distribution of earnings to the taxing agencyB. adjust income tax expense on the income statement to be in agreement with income taxespayable on the balance sheetC. recognize a tax asset or liability for the tax consequences of temporary differencesthat exist at the balance sheet dateD. reconcile the tax consequences of permanent and temporary differences appearing on thecurrent years financial statements32) Taxable income of a corporation differs from pretax financial income because ofPermanent Differences | Temporary DifferencesA. No | YesB. Yes | NoC. No | NoD. Yes | Yes33) Which of the following situations would require interperiod income tax allocationprocedures?A. Interest received on municipal bondsB. Proceeds from a life insurance policy on an officerC. An excess of percentage depletion over cost depletionD. A temporary difference exists at the balance sheet date because the tax basis of anasset or liability and its reported amount in the financial statements differ34) Which of the following is a temporary difference classified as a revenue or gain thatis taxable after it is recognized in financial income?A. Prepaid royalty received in advanceB. An installment sale accounted for on the accrual basis for financial reportingpurposes and on the installment (cash) basis for tax purposesC. Subscriptions received in advanceD. Interest received on a municipal obligation35) At the December 31, 2007 balance sheet date, Garth Brooks Corporation reports anaccrued receivable for financial reporting purposes but NOT for tax purposes. Whenthis asset is recovered in 2008, a future taxable amount will occur andA. Garth will record a decrease in a deferred tax liability in 2008B. total income tax expense for 2008 will exceed current tax expense for 2008C. pretax financial income will exceed taxable income in 2008D. Garth will record an increase in a deferred tax asset in 200836) Which of the following differences would result in future taxable amounts?A. Revenues or gains that are taxable before they are recognized in financial incomeB. Revenues or gains that are recognized in financial income but are never included intaxable income.C. Expenses or losses that are tax deductible after they are recognized in financialincomeD. Expenses or losses that are tax deductible before they are recognized in financialincome.37) In a defined-contribution plan, a formula is used thatA. defines the benefits that the employee will receive at the time of retirement.B. ensures that pension expense and the cash funding amount will be different.C. requires an employer to contribute a certain sum each period based on the formula.D. ensures that employers are at risk to make sure funds are available at retirement.38) In accounting for a defined-benefit pension planA. the employers responsibility is simply to make a contribution each year based onthe formula established in the planB. the expense recognized each period is equal to the cash contributionC. an appropriate funding pattern must be established to ensure that enough monieswill be available at retirement to meet the benefits promisedD. the liability is determined based upon known variables that reflect future salarylevels promised to employees39) In a defined-benefit plan, a formula is used thatA. defines the benefits that the employee will receive at the time of retirementB. requires that pension expense and the cash funding amount be the sameC. requires that the benefit of gain or the risk of loss from the assets contributed to thepension plan be borne by the employeeD. defines the contribution the employer is to make; no promise is made concerning theultimate benefits to be paid out to the employees40) A corporation has a defined-benefit plan. An accrued pension cost will result at theend of the first year if theA. fair value of the plan assets exceeds the accumulated benefit obligationB. amount of employer contributions exceeds the net periodic pension costC. accumulated benefit obligation exceeds the fair value of the plan assetsD. amount of net periodic pension cost exceeds the amount of employer contributions41) In accounting for a pension plan, any difference between the pension cost chargedto expense and the payments into the fund should be reported asA. accrued or prepaid pension costB. an accrued actuarial liabilityC. an offset to the liability for prior service costD. a charge or credit to unrealized appreciation and depreciation42) The interest on the projected benefit obligation component of pension expenseA. reflects the rates at which pension benefits could be effectively settledB. is the same as the expected return on plan assetsC. reflects the incremental borrowing rate of the employerD. may be stated implicitly or explicitly when reported43) Yeager Co. maintains a defined-benefit pension plan for its employees. At eachbalance sheet date, Yeager should report a minimum liability at least equal to theA. projected benefit obligationB. unfunded accumulated benefit obligationC. accumulated benefit obligationD. unfunded projected benefit obligation44) On January 1, 2008, Pratt Corp. adopted a defined-benefit pension plan. The plansservice cost of $300,000 was fully funded at the end of 2008. Prior service cost wasfunded by a contribution of $120,000 in 2008. Amortization of prior service cost was$48,000 for 2008. What is the amount of Pratts prepaid pension cost at December 31,2008?A. $120,000B. $168,000C. $72,000D. $180,00045) Interest cost included in the net pension cost recognized for a period by anemployer sponsoring a defined-benefit pension plan represents theA. increase in the projected benefit obligation due to the passage of timeB. shortage between the expected and actual returns on plan assetsC. increase in the fair value of plan assets due to the passage of timeD. amortization of the discount on unrecognized prior service cost46) On January 1, 2005, Foley Corporation acquired machinery at a cost of $250,000.Foley adopted the double-declining balance method of depreciation for this machineryand had been recording depreciation over an estimated useful life of ten years, with noresidual value. At the beginning of 2008, a decision was made to change to the straightline method of depreciation for the machinery. The depreciation expense to berecorded for the machinery in 2008 is (round to the nearest dollar)A. $18,286B. $25,600C. $22,857D. $25,00047) Accrued salaries payable of $51,000 were NOT recorded at December 31, 2007.Office supplies on hand of $24,000 at December 31, 2008 were erroneously treated asexpense instead of supplies inventory. Neither of these errors was discovered norcorrected. The effect of these two errors would causeA. 2007 net income and December 31, 2007 retained earnings to be understated$51,000 eachB. 2008 net income to be understated $75,000 and December 31, 2008 retainedearnings to be understated $24,000C. 2007 net income to be overstated $27,000 and 2008 net income to be understated$24,000D. 2008 net income and December 31, 2008 retained earnings to be understated$24,000 each48) On January 1, 2005, Lynn Corporation acquired equipment at a cost of $600,000.Lynn adopted the double-declining balance method of depreciation for this equipmentand had been recording depreciation over an estimated life of eight years, with noresidual value. At the beginning of 2008, a decision was made to change to the straightline method of depreciation for this equipment. Assuming a 30% tax rate, thecumulative effect of this accounting change on beginning retained earnings, net of tax,isA. $0B. $121,875C. $78,750D. $77,10949) The estimated life of a building that has been depreciated 30 years of an originallyestimated life of 50 years has been revised to a remaining life of 10 years. Based on thisinformation, the accountant shouldA. depreciate the remaining book value over the remaining life of the assetB. continue to depreciate the building over the original 50-year lifeC. adjust accumulated depreciation to its appropriate balance, through net income,based on a 40-year life, and then depreciate the adjusted book value as though theestimated life had always been 40 yearsD. adjust accumulated depreciation to its appropriate balance through retainedearnings, based on a 40-year life, and then depreciate the adjusted book value asthough the estimated life had always been 40 years50) Which type of accounting change should always be accounted for in current andfuture periodsA. Change in reporting entityB. Change in accounting principleC. Correction of an errorD. Change in accounting estimate