Exam (elaborations) Liberty University ACCT 370 Exam 4 Complete solution

Exam (elaborations) Liberty University ACCT 370 Exam 4 Complete solution Liberty University ACCT 370 Exam 4 Complete solution 100% satisfied: solutions 1. Condensed financial data are presented below for the Phoenix Corporation: 2. 3. 2019 4. 5. 2018 6. Accounts receivabl e 8. 267,500 9. 10.11.$ 12.230,00 0 13. 14.Inventory 15. 16.312,500 17. 18.19. 20.257,50 0 21. 22.Total current assets 23. 24.670,000 25. 26.27. 28.565,00 0 29. 30.Intangibl e assets 31. 32.50,000 33. 34.35. 36.60,00037. 38.Total assets 39. 40.825,000 41. 42.43. 44.695,00 0 45. 46.Current liabiliti es 47. 48.252,500 49. 50.51. 52.200,00 0 53. 54.Long-term liabiliti es 55. 56.77,500 57. 58.59. 60.75,00061. 62.Sales 63. 64.1,640,000 65. 66.67. 68.69. 70.Cost of goods sold 71. 72.982,500 73. 74.75. 76.77. 78.Interest 79. 80.10,000 81. 82.83. 84.85. Liberty University ACCT 370 Exam 4 Complete Solution expense 86.Income tax expense 87. 88.77,500 89. 90.91. 92.93. 94.Net income 95. 96.127,500 97. 98.99. 100. 101. 102. Cas h flow from operation s 103. 104. 71,00 0 105. 106. 107. 108. 109. 110. Cas h flow from investing activitie s 111. 112. (6,00 0 113. )114. 115. 116. 117. 118. Cas h flow from financing activitie s 119. 120. (62,5 00 121. )122. 123. 124. 125. 126. Tax rate 127. 128. 30 129. %130. 131. 132. 133. 134. The total asset turnover ratio for 2019 is (rounded): 135. Floating-rate debt is the most common method for lenders to protect themselves from losses that may arise as a result of: 136. Cheery Company follows IFRS for its financial reporting. On January 1, 2018 Cheery issued €250 million of 10-year convertible notes that pay interest at 5% annually. Investors pay €250 million for the notes even though the company’s credit risk at the time implies a 10% interest rate for traditional debt of similar duration. When the cash flows associated with the debt are discounted at 10%, the resulting value is €175 million. 137. How much cash will Cheery pay for interest during 2018? 138. The components of pension expense are: 139. Defined contribution plans are preferred by companies for all except which of the following reasons? 140. Cash dividends paid by a corporation: 141. Companies with surplus cash will consider the needs of cash for: 142. When a dividend is not declared on preferred stock, and the common shareholders cannot receive a dividend until all past and current dividends are paid to the preferred shareholders, the preferred stock is: 143. Mandatorily redeemable preferred stock is reported on the balance sheet as: 144. Which of the following is not indicative of a complex capital structure? 145. The Heath Corporation reported net income for 2018 of $177,500. Heath began the year with 100,000 shares of $5 par value common shares outstanding and 2,500 shares of $100 par value 8% preferred shares outstanding. On October 1, Heath sold 10,000 shares of common stock for $6 per share. Heath paid dividends to the common shareholders in December. 146. If each share of preferred stock is convertible into 8 shares of common stock, the diluted earnings per share for 2018 is (rounded): 147. On January 1, 2018, Waddle Company adopted a compensatory stock option plan and granted its managers 10,000 options to buy shares of common stock; each option can be used to acquire a share of common stock at a price of $25 a share. The fair value of each option was $7.50 on January 1, 2018. The options can be converted into common stock after July 1, 2018. The required service period is three years. 148. What is the balance in paid-in capital-stock options as of December 31, 2019 assuming that the fair value approach to accounting for stock options is used? 149. Accounting for nonqualified stock option plans results in all of the following except: 150. To record newly issued stock shares upon conversion of debt, managers most often choose the method known as the: 151. A minority ownership interest generally occurs when an investor owns less than which of the following percentages of the stock of an investee company? 152. A parent company’s investment account would include an element which is representative of : 153. Testing for goodwill impairment: 154. Which of the following is not a use of a variable interest entity (VIE)? 155. Foreign currency nonmonetary assets and liabilities for non-free-standing subsidiaries are translated using the: 156. Which of the following is not true regarding consolidations under IFRS? 157. Other-than-temporary impairments are not an issue for debt investments classified as: 158. Cash flows arising from the payment of dividends are cash flows from: 159. Which of the following is not correct with respect to the difference between accrual accounting and cash flow reporting? 160. The FASB decided that the allocation of income taxes paid to operating, financing, and investing activities would be complex and arbitrary, and relied on which one of the following justifications for its decision? 161. Pipe Corporation reported cost of goods sold of $250,000 for 2018. It also reported an increase in inventory for the year of $30,000, and an increase in accounts payable of $24,000. Pipe would report cash paid to suppliers in 2018 under the direct method for cash flows of: 162. The analyst would most likely understand that the change in the balance sheet account for property, plant, and equipment does not reconcile with the account change included in the statement of cash flows because of a write-off due to impairments which the analyst discovered when examining the: 163. Which of the following does not accurately describe the presentation of software development costs on the statement of cash flows? 164. Which of the following statements concerning IFRS and the statement of cash flows is correct? 165. The Xano Company reported merchandise inventory at LIFO of $450,000 on the year-end financial statements. The company also reported a LIFO reserve of $34,000. An estimate of the inventory balance if the inventory had been reported using the FIFO assumption is 166. The two broad categories of differences that result from determining the pre-tax book income and the taxable income are: 167. Which accounting choice would not be used to reduce the likelihood of a technical default? 168. The term "consolidated" is used in financial statements under U.S. GAAP to refer to the financial reporting for a parent and its subsidiaries. The equivalent term used on balance sheets in the United Kingdom is: 169. A lender may be protected from deterioration of the borrower’s creditworthiness if the commercial lending agreement requires the borrower to maintain a: 170.The role of financial accounting information is to facilitate economic transactions and to foster efficient allocation of resources among businesses and individuals. 171.Financial reports provide information that can reduce investors’ uncertainty about the company’s opportunities and risks, thereby raising the company’s cost of capital. 172.Comparability across companies allows analysts to identify real economic similarities in and differences between underlying economic events because those similarities or differences are not obscured by accounting methods or disclosure practices. 173.Executive compensation contracts seldom contain annual bonus and longer term pay components tied to financial statement results, but instead usually rely on stock options as a means to reward managers in a manner that is less subject to manipulation by management. 174.The public and private sector regulatory agencies establish and enforce financial reporting requirements designed to ensure that companies meet certain minimum levels of financial disclosure. 175.Although the SEC has the ultimate legal authority to set accounting principles in the U.S., it has looked to private-sector organizations (e.g., the FASB) to establish and enforce these principles. 176.Management has considerable discretion over the particular accounting procedures used in the financial statements and over the details contained in related note disclosures. 177.Accounting standard-setting in the U.S. is a technical process and thus little affected by political considerations. 178.The IASB and FASB have worked together to develop a single set of high-quality, understandable, enforceable and globally accepted international financial reporting standards. 179.Foreign companies registered with the SEC that use IFRS no longer have to reconcile their financial statements to U.S. GAAP. 180.U.S. GAAP has been criticized as being too “rules-based” thus allowing managers to invent “loopholes” that conform to the letter of a standard but simultaneously violate its spirit. 181.The goal of the movement toward international convergence of accounting standards is a single set of accounting standards accepted worldwide and superior to the choices presently available. 182.Regulators of industries granted monopoly privileges use financial statement data in setting the rates companies are permitted to charge for the services these industries provide. 183.Owners and managers have an economic incentive to supply the amount and type of financial information that will enable the company to raise capital at the lowest cost. 184.Financial statement information can help customers monitor a supplier’s manufacturing processes and thus evaluate the quality of its products. 185.The conceptual framework for financial reporting includes the standards of GAAP. 186.A company’s financial statements reflect information about 187.All financial statements: 188.A firm’s financial statements contain trends that give users insight into the firm’s 189.The ability to raise additional cash by selling assets, issuing stock, or borrowing more is 190.Creditors assess credit risk by comparing a firm’s required principal and interest payments to estimates of the firm’s current and future 191.Professional analysts need information on a company’s future earnings and cash flow to evaluate audit vulnerabilities, to assess debt repayment prospects and to 192.The costs of providing financial information is ultimately borne by 193.Which of the following statements is not correct regarding a company’s financial statements? 194.Which of the following are correct with respect to information contained in financial statements? 195.Which is not correct regarding Regulation Fair Disclosure (Reg FD) ? 196.Companies that have projected operating cash flows that are more than sufficient to meet debt payments are 197.Investors who compare a firm’s discounted future cash flows to the current market price of a stock are using the 198.A company’s financial statements can be used for all of the following purposes except 199.The market analysis known as fundamental analysis 200.Investors who follow a fundamental analysis approach 201.In designing audit procedures the auditor will include all of the following except: 202.Analytical review procedures include all of the following except 203.Relevant financial information 204.To achieve faithful representation, the financial information must be 205.Financial information that is provided to decision makers before it loses its capacity to influence their decisions is 206.Financial information which does not favor one set of interested parties over another is 207.Employees demand financial information for all of the following except: 208.Which of the following statements is correct with respect to economic incentives to release financial information? 209.Which statement below describes efficient market investors? 210.Which of the following create a competitive disadvantage according to the full disclosure principle? 211.When independent measurers get similar results when using the same accounting measurement methods, the financial information is 212.Being verifiable and neutral is part of what makes financial information 213.If a company fails to disclose information about a lawsuit because it might be embarrassing to the company, it is violating 214.Which of the following is not an accurate statement related to the demand for financial reporting? 215.Financial information capable of making a difference in a decision is 216.Business enterprises enter into many different types of contracts. Examples of such contracts that often contain language that refers to verifiable financial statement numbers include all of the following except 217.What type of trends and relationships can be gleaned from a company’s financial statements? 218.The type of analysis that uses financial statements to assess a company’s current market price is 219.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. 220.Which statement is not true regarding the conservatism convention in accounting? 221.Investors who presume that they have no insights about company value beyond the current market price and use financial statement data to assess firm-specific attributes believe in the 222.Which of the following people outside the company do not demand financial statement information as a key input? 223.Which item below does not describe a politically vulnerable firm? 224.Which of the following are primary qualitative characteristics of accounting information? 225.To achieve Faithful Representation, accounting information presented must meet which of the following requirements? 226.The amounts of executive compensation and bonuses are often determined by 227.Whose responsibility is it to ensure that the company’s financial information is properly assembled, classified, characterized, and presented clearly and concisely in order to make it understandable? 228.Which of the following is not an action taken by shareholders when the earnings and share price fall below acceptable levels? 229.Employees demand financial statement information because the firm’s performance is often linked to all of the following except 230.When a borrower violates a loan covenant that requires minimum achievement of an accounting measure in the financial statements, the lender can 231.Investors and analysts must have certain capabilities regarding financial reporting which include 232.The goal of generally accepted accounting principles is to ensure that a company’s financial statements 233.Timeliness is a qualitative characteristic of accounting information that indicates that information should be provided to users 234.Which one of the following types of disclosure costs is the cost of disclosing the company’s pricing strategies? 235.If the financial reporting environment were unregulated, disclosure would occur voluntarily 236.Companies offering higher risk securities have incentives to mask their true condition by 237.One financial disclosure cost is the possibility that competitors may use the information to harm the company providing the disclosure. All of the following disclosures might create a competitive disadvantage except 238.It is common for shareholders to initiate litigation when 239.When comparing U.S. GAAP and IFRS standards, which of the following is not correct? 240.Using the same accounting methods to record and report similar events from period to period demonstrates 241.Which one of the following has statutory authority to determine accounting rules for companies whose securities are owned by the general public? 242.Which of the following does not describe how FASB endeavors to draft pronouncements? 243.The growth of global investing has spurred development of worldwide accounting standards that are written by the 244.The organization responsible for establishing auditing standards and inspecting and investigating auditing practices of public accounting firms is 245.The only authoritative source of U.S. GAAP is created by FASB and exists in a single database known as 246.The ASC uses a structure in which the FASB’s authoritative accounting guidance is organized into all of the following except 247.ASC content is organized 248.GAAP’s flexibility in its reporting standards allows companies to 249.Financial statements follow 250.A company manages a large portfolio of marketable securities and sells only stocks with substantial gains in poor income years or sells only stocks with substantial losses in good income years. This strategy is an indication of 251.Identify the correct order of the three steps constituting the FASB’s “due process” procedure. 252.The Securities and Exchange Act of 1934 required all publicly traded firms to 253.The Financial Accounting Standards Board has responsibility for the establishment of U. S. accounting standards and 254.When financial information is measured and reported in a similar manner across different companies in the same industry it is 255.When a company changes from straight-line to the declining balance method of accounting for depreciation, the financial statements lack 256.The network of conventions, rules, guidelines, and procedures used by the accounting profession is known as generally accepted 257.Omissions or misstatements within a financial statement which could influence the decisions of the user of the statement violates 258.Some countries’ philosophy of financial reporting differs from U.S. GAAP because their financial reports are required to 259.Differences between IFRS and U.S. GAAP include all of the following except 260.Financial reporting philosophies differ across countries. These philosophies evolve from and reflect several factors including all of the following except 261.Companies needing to access new and ever larger sources of capital in response to increased international competitiveness face a severe disadvantage if their financial reporting 262.International financial reporting standards are currently established by the 263.IFRS frequently 264.International Financial Reporting Standards (IFRS) are 265.Which of the following statements regarding IFRS is incorrect? 266.Accounting information is heavily regulated 267.When is it permissible to issue financial statements that contain a material departure from GAAP? 268.The underlying principal in ASC Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration expected to be exchanged for those goods or services. 269.Amounts received from the sale of gift cards should be recognized by the seller at the time of sale. 270.Under a consignment arrangement, revenue is not recognized until the consigned goods are sold to a third party. 271.ASC Topic 606 provides a five-step model for evaluating how and when revenue should be recognized rather than providing detailed industry-by-industry standards. 272.Ann Smith just saw her doctor. After the appointment, she was informed by the receptionist that the fee for the visit is $75 and that her insurance company will be billed for the visit. Ann was also notified that her insurance company will pay all of the fee except for the $20 co-pay, which she pays with her debit card right away. Because the doctor’s office has not entered into a contract, it would not record revenue until it verifies that the insurance company will pay. 273.Gamebox sells video-gaming devices, games, and online game subscriptions. The Gamebox system normally sells for $250 and comes prepackaged with one game. The average price for games is $30. The company also sells its online game subscription package, which allows members to download and play one new game per month, for $240. During the holiday season, the company provides a package deal which includes the gaming system with two games and a free one-year game subscription for $400. The company should allocate $192.31of the $400 package purchase price to the gaming system. 274.Under the percentage-of-completion method, the amount debited to “construction expense” each period is the actual construction costs incurred in that period. 275.Treating the “billings on construction in progress” account as an off-set (contra) to the construction inventory account avoids including certain costs and profits twice on the balance sheet. 276.Prior to ASC Topic 606, the installment sales method of recognizing profit for accounting purposes is acceptable GAAP if collection of the sales price is not reasonably assured. 277.Initial franchise fee revenue should be recognized when all material services or conditions relating to the sale have been substantially performed by the franchisor. 278.The key accounting issue related to bundled (multiple-element) sales transactions is the amount of revenue to be recognized over the contract period. 279.Both public U.S. companies and companies reporting under IFRS must begin reporting revenue based on ASC Topic 606 in January 2018. Early adoption is permitted under both U.S. GAAP and IFRS. 280.Sell4U is an online site that allows its clients to post items for sale. Sell4U charges a 5% brokerage fee for use of the site, payable within 10 days of the sale. As an agent, Sell4U may recognize revenue for the brokerage fee as soon as an item is sold. 281.Evans Equipment sells, installs, and maintains manufacturing equipment. The typical sales contract includes the purchase of the equipment, installation, and a five-year maintenance contract. Most customers choose to trade in the equipment for the new model at the end of the five-year contract. Evans Equipment should amortize the cost of installation over five years. 282.Gamebox, a seller of video-gaming systems, games and online gaming subscriptions, recently made available a coupon that allows its gaming subscription members to extend their subscriptions by three months at no charge. Subscribers need only to login to the website using their user name and password and provide the coupon code. Because this contract modification (from 12 months to 15 months) does not add distinct goods or services from the original contract, Gamebox need only make a cumulative catch-up adjustment. 283.The time that the performance obligation is satisfied for revenue recognition is usually 284.If consideration is received before a contract is identified and the consideration is nonrefundable, revenue may be recognized if 285.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 286.Assuming the requirements for recognizing revenue over time are met, and using the percentage-of-completion method to recognize revenue, the measure of completion is computed by dividing 287.Assuming the requirements for recognizing revenue over time are met, and using the percentage-of-completion method, the profit to be recognized in any year is based on the completion ratio of 288.Noah Construction Company is building a large complex for a contract price of $5,000,000. This is a three-year project and the requirements for recognizing revenue over time are met. The total estimated cost of the project is $4,000,000 and the following information is available: 289.($ in thousands) 290. Year 1 291. Year 2 292. Year 3 293.Costs incurred 294.$ 1,000 295.$ 1,500 296.$ 1,250 297.Estimated completion costs 298.$ 299.$ 300.$ 3,000 1,500 0 301.Billings 302.$ 750 303.$ 1,750 304.$ 2,500 305.Cash collected 306.$ 500 307.$ 1,500 308.$ 3,000 309.Using the percentage-of-completion method of revenue recognition, how much income is recognized in Year 2? 310.Using the percentage-of-completion method of revenue recognition, how much income is recognized in Year 3? 311.Which one of the following entries would be made in Year 1 to record the costs incurred using the percentage-of-completion method of revenue recognition? 312.Which one of the following entries would be made in Year 1 to record the income recognized using the percentage-of-completion method of revenue recognition? 313.Which one of the following entries would be made in Year 2 to record the customer billing using the percentage-of-completion method of revenue recognition? 314.Using revenue recognition standards prior to ASC Topic 606, which one of the following entries would be made in Year 3 to record the completion and acceptance of the project using the completed-contract method of revenue recognition? 315.Borden Construction entered into the following contracts with Lovely Landscaping, LLP: (1) construct a paver patio, (2) plant trees, and (3) landscape planting beds for a new home construction project. Lovely Landscaping should treat the contracts 316.Prior to ASC Topic 606 for revenue recognition, when losses occur on long-term contracts using the completed-contract method, they are recognized 317.On January 1, 2018, Monroe Contractors signed a contract to inspect and complete needed repairs to the water lines for the town of Pleasantville. Because Monroe will not know which water lines will need repairs until after it completes the inspections, it is difficult to accurately estimate the amount it will charge the town. Therefore, Monroe will recognize revenue