Exam (elaborations) Liberty University ACCT 370 Quiz 4 Power answer

Exam (elaborations) Liberty University ACCT 370 Quiz 4 Power answer Liberty University ACCT 370 Quiz 4 Power answer A+ Guarantee: Yanita Company, an IFRS reporting firm, has three bank accounts. The respective account balances are as follows: Account 1: $50,000; Account 2: $70,000; Account 3: $(10,000). Consistent with IFRS, cash and cash equivalents are equal to: Madrid Incorporated’s 20X1 income statement reported income tax expense of $635,375. During 20X1, Madrid’s income taxes payable account increased $19,735 while the deferred tax asset account increased $39,365. How much cash was paid for taxes during 20X1? During 20X1, Krug Company reported net sales of $1,025,000. During the year net accounts receivable increased $39,750 even though Krug wrote-off $7,150 of receivables as uncollectible; Krug uses the allowance method to account for bad debts. Krug’s bad debt expense during 20X1 was $20,500. How much cash was collected from customers during 20X1? Changes in the balance sheet accounts at June 30, 20X1 and 20X2 for the Poker Company are presented below: Increase (Decrease) Assets Cash $ 480,000 Accounts receivable 200,000 Inventory 300,000 Long-term investments 200,000 Equipment (200,000) Accumulated depreciation (60,000) Liabilities and Stockholders’ Equity Accounts payable $ (40,000) Dividends payable 400,000 Notes payable—Current (200,000) Notes payable—Long-term 400,000 Common stock, $1.00 par 300,000 Additional paid-in capital 100,000 Retained earnings 80,000 Additional Information for 20X2: Net income was $480,000 and dividends of $400,000 were declared. Common stock was issued for cash. A new long-term investment was acquired for $360,000. Liberty University ACCT 370 Quiz 4 Power answer A long-term investment was sold for $160,000. Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000. The net cash flow from operating activities for 20X2 is a: Which of the following is an acceptable accounting approach for distributions under the equity method? U.S. GAAP provides guidance that defines hedge effectiveness. To be considered effective, a hedge should offset between ___% and ___% of changes in the hedged item's market price. The following information is available for Crammer Company’s two segments: Financial Statement Information Segment A (in Million) Segment B (in Million) Service revenue $ 100 $ 200 Operating expenses $ 80 $ 160 Average Assets $ 50 $ 320 Segment A’s rate of return on assets is: Segment B’s rate of return on assets is: Beyer Company, is a U.S. based multinational that operates in the U.S., Europe, and Asia. The company reports on two distinct product-related segments—manufacturing and financing. Additional disclosures required include: Katie analyzes the dollar-based consolidated financial statements of a company that owns a foreign subsidiary. Katie observes that the foreign subsidiary’s sales increased by 24% compared to last year. Katie should be aware that the results Milton Company’s unadjusted trial balance on 12/31/20X1 shows an accounts receivable from a non-U.S. customer. The receivable arose from a sale denominated in Euros. Since the receivable was recognized, the Euro value has risen. Milton should: Wiese Limited, a foreign subsidiary of U.S. based Wald Inc. operates primarily economically independent from its parent company. When the exchange rate was $1.30 per one British Pound Sterling (£), Wald Limited purchased Inventory for £2,100 pounds. Wald resells one-third of the inventory for £900 when the exchange rate was $1.26 per Pound Sterling and another one-third for £900 when the exchange rate was $1.28 per Pound Sterling. At the end of the reporting period, the exchange rate is $1.29 per Pound Sterling. The parent company applies the current rate method in its process of consolidating the financial results of its subsidiaries with its own financial results. Wald Inc. reports ending inventory associated with its subsidiary in the amount of: Cramer Company owns 100% of the outstanding shares of its European subsidiaries, which operate under Cramer Company’s business model. The subsidiaries’ primary objective is to help Cramer Company expand its global market share. In consolidating the subsidiaries’ financial statements with those of the U.S. parent, the subsidiaries’ financial statement numbers should be: Susqua, Inc. has held-to-maturity debt securities it purchased in 20X1. At December 31, 20X2, Susqua, Inc. reported a $120,000 impairment loss related to these securities. During 20X3, the debtor was successful in registering a new patent which improved the debtor’s operating outlook. This change of events resulted in a reversal of $45,000 of the impairment loss. At December 31, 20X3, the fair value of the debt securities had increased by $68,000 over the impaired value previously recorded. Susqua, Inc. uses IFRS for its external reporting. How much, if any, of this reversal can Susqua, Inc. report in its income for 20X3? Mesquite, Inc. has held-to-maturity debt securities it purchased in 20X1. At December 31, 20X2, the amortized cost basis of the securities is $220,000 and the fair value of the securities is $208,000. The present value of estimated future cash flows discounted at the original effective interest rate is $210,000. Mesquite, Inc. uses IFRS for its external reporting. What amount of loss, if any, will Mesquite, Inc. report related to these securities for 20X2? On January 1, 20X1, the Regal Company purchased 30% of the outstanding voting stock of the Air Corporation for $300,000; the book value of Air’s net assets at the date of purchase was $900,000. Regal was willing to pay more than the book value of the acquired shares because Air’s depreciable assets with a ten-year remaining life were undervalued. Regal uses straight-line depreciation. During 20X1, Air reported net income of $75,000 and paid dividends of $30,000. The income reported by Regal during 20X1 pertaining to the Air investment was: On January 1, 20X1, Ramsey Company purchased 35% of the outstanding common shares of the Vapor Company for $70,000. At the time of investment, Vapor Company’s net assets were $200,000. During 20X1, Vapor Company earned $80,000 and declared a dividend of $40,000. Ramsey accounted for the investment under the equity method. What is the balance in the investment account as of December 31, 20X1? Central Investments bought 4,000 shares of Benet Company common stock on January 1, 20X1, for $20,000, and 4,000 shares of Roy Company common on July 1, 20X1, for $24,000. Benet declared dividends on December 31, 20X1 of $3,000. At the end of 20X1, the fair value of Roy was $30,000 and the fair value of Benet was $28,000. At the end of 20X2, the fair value of Roy was $32,000 and the fair value of Benet was $24,000. These investments are reported in the long-term asset section of Central’s balance sheet. Central owns 8% of Benet Company and 12% of Roy Company. How much income was reported on the 20X1 income statement? A company purchased shares of stock of another company for $75,000 during 20X1. The shares’ fair value was $79,000 at the end of 20X1 and $81,000 at the end of 20X2. Which of the following statements correctly describes the investor’s accounting for the investment? The Heath Corporation reported net income for 20X1 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. The basic earnings per share for 20X1 is: Condensed financial data are presented below for the Phoenix Corporation: Accounts receivable 267,500 $230,000 Inventory 312,500 257,500 Total current assets 670,000 565,000 Intangible assets 50,000 60,000 Total assets 825,000 695,000 Current liabilities 252,500 200,000 Long-term liabilities 77,500 75,000 Sales 1,640,000 Cost of goods sold 982,500 Interest expense 10,000 Income tax expense 77,500 Net income 127,500 Cash flow from operations 71,000 Cash flow from investing activities (6,000) Cash flow from financing activities (62,500) Tax rate 30% The total asset turnover ratio for 2019 is (rounded): Floating-rate debt is the most common method for lenders to protect themselves from losses that may arise as a result of: 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. How much cash will Cheery pay for interest during 2018? The components of pension expense are: Defined contribution plans are preferred by companies for all except which of the following reasons? Cash dividends paid by a corporation: Companies with surplus cash will consider the needs of cash for: 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: Mandatorily redeemable preferred stock is reported on the balance sheet as: Which of the following is not indicative of a complex capital structure? 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. If each share of preferred stock is convertible into 8 shares of common stock, the diluted earnings per share for 2018 is (rounded): 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. 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? Accounting for nonqualified stock option plans results in all of the following except: To record newly issued stock shares upon conversion of debt, managers most often choose the method known as the: A minority ownership interest generally occurs when an investor owns less than which of the following percentages of the stock of an investee company? A parent company’s investment account would include an element which is representative of : Testing for goodwill impairment: Which of the following is not a use of a variable interest entity (VIE)? Foreign currency nonmonetary assets and liabilities for non-free-standing subsidiaries are translated using the: Which of the following is not true regarding consolidations under IFRS? Other-than-temporary impairments are not an issue for debt investments classified as: Cash flows arising from the payment of dividends are cash flows from: Which of the following is not correct with respect to the difference between accrual accounting and cash flow reporting? 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? 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: 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: Which of the following does not accurately describe the presentation of software development costs on the statement of cash flows? Which of the following statements concerning IFRS and the statement of cash flows is correct? 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 The two broad categories of differences that result from determining the pre-tax book income and the taxable income are: Which accounting choice would not be used to reduce the likelihood of a technical default? 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: A lender may be protected from deterioration of the borrower’s creditworthiness if the commercial lending agreement requires the borrower to maintain a: The role of financial accounting information is to facilitate economic transactions and to foster efficient allocation of resources among businesses and individuals. Financial reports provide information that can reduce investors’ uncertainty about the company’s opportunities and risks, thereby raising the company’s cost of capital. 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. 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. 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. 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. Management has considerable discretion over the particular accounting procedures used in the financial statements and over the details contained in related note disclosures. Accounting standard-setting in the U.S. is a technical process and thus little affected by political considerations. The IASB and FASB have worked together to develop a single set of high-quality, understandable, enforceable and globally accepted international financial reporting standards. Foreign companies registered with the SEC that use IFRS no longer have to reconcile their financial statements to U.S. GAAP. 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. The goal of the movement toward international convergence of accounting standards is a single set of accounting