Lockhart Corporation is a calendar-year corporation

Lockhart Corporation is a calendar-year corporation. At the beginning of 2013, its election to be taxed as an S corporation became effective. Lockhart Corp.’s balance sheet at the end of 2012 reflected the following assets (it did not have any earnings and profits from its prior years as a C corporation):

Asset

Adjusted Basis

FMV

Cash

$?35,000

$?35,000

Accounts receivable

?? 25,000

??25,000

Inventory

?180,000

? 210,000

Land

? 125,000

? 120,000

Totals

$365,000

$390,000

Lockhart’s business income for the year was $65,000 (this would have been its taxable income if it were a C corporation).

  1. During 2013, Lockhart sold all of the inventory it owned at the beginning of the year for $250,000. What is its built-in gains tax in 2013? Be sure to show your work.
  2. Assume the same facts as in part (1), except that if Lockhart were a C corporation, its taxable income would have been $17,000. What is its built-in gains tax in 2013? Be sure to show your work.
  3. Assume the original facts except the land was valued at $115,000 instead of $120,000. What is Lockhart’s built-in gains tax in 2013?

Here’s the SOLUTION

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A manager of a small store wanted to discourage shoplifters by putting signs

A manager of a small store wanted to discourage shoplifters by putting signs around the store saying “Shoplifting is a crime!” However, he wanted to make sure this would not result in customers buying less. To test this, he displayed the signs every other Wednesday for 8 weeks, for a total of 4 days displayed. He recorded the store’s sales for those four Wednesdays and then recorded the store’s sales for the four alternate Wednesdays, when the signs were not displayed. On the Wednesdays with the sign, the sales were 83, 73, 81, and 79. On the Wednesdays without the sign, sales were 84, 90, 82, and 84.

Do these results suggest that customers buy less when the signs are displayed? (Use the .05 significance level.)

a. Use the five steps of hypothesis testing.
b. Sketch the distribution involved.
c. Figure the effect size.
d. Explain what you did to a person who is familiar with the t test for a single sample but is unfamiliar with the t test for independent means.

Here’s the SOLUTION

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Benning Manufacturing Company is negotiating with a customer for the lease of a large machine manufactured by Benning

Benning Manufacturing Company is negotiating with a customer for the lease of a large machine manufactured by Benning. The machine has a cash price of $820,000. Benning wants to be reimbursed for financing the machine at an 8% annual interest rate. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:

1. Determine the required lease payment if the lease agreement calls for 12 equal annual payments beginning immediately.

2. Determine the required lease payment if the first of 12 annual payments will be made one year from the date of the agreement.

3. Determine the required lease payment if the first of 12 annual payments will begin immediately and Benning will be able to sell the machine to another customer for $52,000 at the end of the 12-year lease.

Here’s the SOLUTION

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FIN 515 Week 8 Final Exam – (TCO A) Which of the following does NOT always increase a company’s

FIN 515 WEEK 8 FINAL EXAM

1. (TCO A) Which of the following does NOT always increase a company’s market value? (Points : 5)
Increasing the expected growth rate of sales
Increasing the expected operating profitability (NOPAT/Sales)
Decreasing the capital requirements (Capital/Sales)
Decreasing the weighted average cost of capital
Increasing the expected rate of return on invested capital

2. (TCO F) Which of the following statements is correct? (Points : 5)
The NPV, IRR, MIRR, and discounted payback (using a payback requirement of 3 years or less) methods always lead to the same accept/reject decisions for independent projects.
For mutually exclusive projects with normal cash flows, the NPV and MIRR methods can never conflict, but their results could conflict with the discounted payback and the regular IRR methods.
Multiple IRRs can exist, but not multiple MIRRs. This is one reason some people favor the MIRR over the regular IRR.
If a firm uses the discounted payback method with a required payback of 4 years, then it will accept more projects than if it used a regular payback of 4 years.
The percentage difference between the MIRR and the IRR is equal to the project’s WACC.

3. (TCO D) Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company’s last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?
a. $26.77
b. $27.89
c. $29.05
d. $30.21
e. $31.42
(Points : 20)

4. (TCO G) Singal Inc. is preparing its cash budget. It expects to have sales of $30,000 in January, $35,000 in February, and $35,000 in March. If 20% of sales are for cash, 40% are credit sales paid in the month after the sale, and another 40% are credit sales paid 2 months after the sale, what are the expected cash receipts for March?
a. $24,057
b. $26,730
c. $29,700
d. $33,000
e. $36,300
(Points : 20)

Final Exam Page 2

1. (TCO H) Zervos Inc. had the following data for 2008 (in millions). The new CFO believes (a) that an improved inventory management system could lower the average inventory by $4,000, (b) that improvements in the credit department could reduce receivables by $2,000, and (c) that the purchasing department could negotiate better credit terms and thereby increase accounts payable by $2,000. Furthermore, she thinks that these changes would not affect either sales or the costs of goods sold. If these changes were made, by how many days would the cash conversion cycle be lowered?
Original    Revised
Annual sales: unchanged
Cost of goods sold: unchanged
Average inventory: lowered by $4,000
Average receivables: lowered by $2,000
Average payables: increased by $2,000
Days in year    $110,000
$80,000
$20,000
$16,000
$10,000
365    $110,000
$80,000
$16,000
$14,000
$12,000
365

a. 34.0
b. 37.4
c. 41.2
d. 45.3
e. 49.8 (Points : 30)

2. (TCO C) Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its nonfree trade credit? (Assume a 365-day year.)
a. 20.11%
b. 21.17%
c. 22.28%
d. 23.45%
e. 24.63%
(Points : 30)

3. (TCO E) You were hired as a consultant to the Quigley Company, whose target capital structure is 35% debt, 10% preferred, and 55% common equity. The interest rate on new debt is 6.50%, the yield on the preferred is 6.00%, the cost of common from retained earnings is 11.25%, and the tax rate is 40%. The firm will not be issuing any new common stock. What is Quigley’s WACC?
a. 8.15%
b. 8.48%
c. 8.82%
d. 9.17%
e. 9.54%
(Points : 30)

4. (TCO B) A company forecasts the free cash flows (in millions) shown below. The weighted average cost of capital is 13%, and the FCFs are expected to continue growing at a 5% rate after Year 3. Assuming that the ROIC is expected to remain constant in Year 3 and beyond, what is the Year 0 value of operations, in millions?
Year: 1 2 3
Free cash flow: -$15 $10 $40
a. $315
b. $331
c. $348
d. $367
e. $386
(Points : 35)

5. (TCO G) Based on the corporate valuation model, Hunsader’s value of operations is $300 million. The balance sheet shows $20 million of short-term investments that are unrelated to operations, $50 million of accounts payable, $90 million of notes payable, $30 million of long-term debt, $40 million of preferred stock, and $100 million of common equity. The company has 10 million shares of stock outstanding. What is the best estimate of the stock’s price per share?
a. $13.72
b. $14.44
c. $15.20
d. $16.00
e. $16.80
(Points : 35)

6. TCO G) Clayton Industries is planning its operations for next year, and Ronnie Clayton, the CEO, wants you to forecast the firm’s additional funds needed (AFN). The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millions.
Last year’s sales = S0    $350        Last year’s accounts payable    $40
Sales growth rate = g    30%        Last year’s notes payable    $50
Last year’s total assets = A0*    $500        Last year’s accruals    $30
Last year’s profit margin = PM    5%        Target payout ratio    60%

a. $102.8
b. $108.2
c. $113.9
d. $119.9
e. $125.9 (Points : 30)

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FIN 515 Week 4 Business Valuation and Stock Valuation – Midterm Exam

FIN 515 Week 4  Business Valuation and Stock Valuation – Midterm Exam

1. (TCO A) Which of the following statements is CORRECT? (Points : 10)
It is generally more expensive to form a proprietorship than a corporation because, with a proprietorship, extensive legal documents are required.
Corporations face fewer regulations than sole proprietorships.
One disadvantage of operating a business as a sole proprietorship is that the firm is subject to double taxation, at both the firm level and the owner level.
One advantage of forming a corporation is that equity investors are usually exposed to less liability than in a regular partnership.
If a regular partnership goes bankrupt, each partner is exposed to liabilities only up to the amount of his or her investment in the business.

2. (TCO G) Which of the following statements is CORRECT? (Points : 10)
In the statement of cash flows, a decrease in accounts receivable is reported as a use of cash.
Dividends do not show up in the statement of cash flows because dividends are considered to be a financing activity, not an operating activity.
In the statement of cash flows, a decrease in accounts payable is reported as a use of cash.
In the statement of cash flows, depreciation charges are reported as a use of cash.
In the statement of cash flows, a decrease in inventories is reported as a use of cash.

3. (TCO G) LeCompte Corp. has $312,900 of assets, and it uses only common equity capital (zero debt). Its sales for the last year were $620,000, and its net income after taxes was $24,655. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 15%. What profit margin would LeCompte need in order to achieve the 15% ROE, holding everything else constant? (Points : 10)
7.57%
7.95%
8.35%
8.76%
9.20%

4. (TCO B) You want to buy a new sports car three years from now, and you plan to save $4,200 per year, beginning one year from today. You will deposit your savings in an account that pays 5.2% interest. How much will you have just after you make the third deposit, three years from now? (Points : 10)
$11,973
$12,603
$13,267
$13,930
$14,626

5. (TCO B) You sold a car and accepted a note with the following cash flow stream as your payment. What was the effective price you received for the car assuming an interest rate of 6.0%?
Years:    0          1             2             3             4
|———–|————–|————–|————–|
CFs:     $0     $1,000     $2,000     $2,000     $2,000 (Points : 10)
$5,987
$6,286
$6,600
$6,930
$7,277

6. (TCO B) Suppose you borrowed $14,000 at a rate of 10.0% and must repay it in five equal installments at the end of each of the next five years. How much interest would you have to pay in the first year? (Points : 10)
$1,200.33
$1,263.50
$1,330.00
$1,400.00
$1,470.00

7. (TCO D) A 15-year bond with a face value of $1,000 currently sells for $850. Which of the following statements is CORRECT? (Points : 10)
The bond’s coupon rate exceeds its current yield.
The bond’s current yield exceeds its yield to maturity.
The bond’s yield to maturity is greater than its coupon rate.
The bond’s current yield is equal to its coupon rate.
If the yield to maturity stays constant until the bond matures, the bond’s price will remain at $850.

8. (TCO D) Garvin Enterprises’ bonds currently sell for $1,150. They have a six-year maturity, an annual coupon of $85, and a par value of $1,000. What is their current yield? (Points : 10)
7.39%
7.76%
8.15%
8.56%
8.98%

9. (TCO C) Niendorf Corporation’s five-year bonds yield 6.75%, and five-year T-bonds yield 4.80%. The real risk-free rate is r* = 2.75%, the inflation premium for five-year bonds is IP = 1.65%, the default risk premium for Niendorf’s bonds is DRP = 1.20% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t – 1) x 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Niendorf’s bonds? (Points : 10)
0.49%
0.55%
0.61%
0.68%
0.75%

10. (TCO C) Assume that to cool off the economy and decrease expectations for inflation, the Federal Reserve tightened the money supply, causing an increase in the risk-free rate, rRF. Investors also became concerned that the Fed’s actions would lead to a recession, and that led to an increase in the market risk premium, (rM – rRF). Under these conditions, with other things held constant, which of the following statements is most correct? (Points : 10)
The required return on all stocks would increase by the same amount.
The required return on all stocks would increase, but the increase would be greatest for stocks with betas of less than 1.0.
Stocks’ required returns would change, but so would expected returns, and the result would be no change in stocks’ prices.
The prices of all stocks would decline, but the decline would be greatest for high-beta stocks.
The prices of all stocks would increase, but the increase would be greatest for high-beta stocks.

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ACC 310 Week 4 Quiz – Relative performance evaluations (RPE)

ACC 310 Week 4 Quiz (Variant 2)

1. Relative performance evaluations (RPE) are not designed to (Points : 1)
A. compare managers to other comparable managers.
B. compare divisions with other comparable divisions.
C. remove the effect of environmental factors that are beyond a manager’s control.
D. restate departmental goals so meaningful comparisons can be made.

2. Which of the following statements is (are) false regarding the effective use of management control systems.
A. In general, cost allocations should not be used in management control systems because clear control over the cost being allocated cannot be determined.
B. The primary reason to use a dual rate allocation system is to focus a manager’s performance evaluation on factors under the manager’s direct control.
A. Only A is false.
B. Only B is false.
C. Both A and B are false.
D. Neither A nor B is false.

3. The method of accounting for joint product costs that will produce the same gross margin for all products is the
A. replacement method.
B. physical quantities method.
C. net realizable value method.
D. units produced method.

4. Which of the following activities is most likely to be classified as value-added for a manufacturing company?
A) inspecting
B) assembling
C)storing
D) ordering

5. The controllability concept states that managers should be held responsible for
A. all items over which they have decision-making authority
B. costs and revenues, but not investments in assets used in their division.
C. only items that are allocated to their divisions on a per-unit basis.
D. fixed compensation items, but not contingent compensation items.

6. Which of the following budgets is not required in a wholesale organization?
A. cash
B. sales
C. production
D. cost of goods sold
marketing and administrative expenses

7. The amount of resources used in an activity-based costing (ABC) system for a specific activity is computed by multiplying the:
A. cost driver rate and the actual cost driver volume.
B.cost driver rate and the planned cost driver volume.
C.overhead rate and the actual cost driver volume.
D. overhead rate and the planned cost driver volume.

8. Assets invested in a responsibility center are included in a performance report of:
A. Cost Center
B. Profit Center (Points : 1)
only A is true.
Both A and B are true.
Neither A nor B is true.
only B is true.

9. The unused resource capacity is the difference between the resources supplied and the resources
A. purchased
B. wasted
C. used
D. on hand

10. Pardee Company makes 30% of its sales for cash and 70% on account. 60% of the account sales are collected in the month of sale, 25% in the month following sale, and 12% in the second month following sale. The remainder is uncollectible. The following information has been gathered for Pardee’s first year of operations.
Total cash receipts in Month 3 will be: (Points : 5)
A. $52,200.
B. $53,290.
C. $50,000.

Here’s the SOLUTION
D. $51,510.

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At the beginning of 2011, Patel Company incurred the following start-up

At the beginning of 2011, Patel Company incurred the following start-up and organization costs: (1) attorneys’ fees with a market value of $20,000, paid with 12,000 shares of $1 par value common stock, and (2) incorporation fees of $12,000.

Calculate total start-up and organization costs.

What will be the effect of these costs on the income statement and balance sheet?

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Beatnik Company has a current ratio of 2.5 and a quick ratio of 2.0

Beatnik Company has a current ratio of 2.5 and a quick ratio of 2.0. If the firm experienced $2 million in cost of sales and sustains an inventory turnover of 8.0, what are the firm’s current assets?

The only major difference between the current ratio and the quick ratio is the inclusion of inventory in the numerator. If cost of sales is $2 million and inventory turns over 8 times per year, then average inventory is $250,000 ($2,000,000 ÷ 8).

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Kansas Company uses a standard cost accounting system (A+ Guaranteed)

Kansas Company uses a standard cost accounting system. In 2014, the company produced 28,400 units. Each unit took several pounds of direct materials and 1.6 standard hours of direct labor at a standard hourly rate of $13.00. Normal capacity was 49,920 direct labor hours. During the year, 130,200 pounds of raw materials were purchased at $0.96 per pound. All materials purchased were used during the year.

A)If the materials price variance was $1,302 favorable, what was the standard materials price per pound?

B)If the materials quantity variance was $7,838 unfavorable, what was the standard materials quantity per unit?

C)What were the standard hours allowed for the units produced?

D)If the labor quantity variance was $6,630 unfavorable, what were the actual direct labor hours worked?

E)If the labor price variance was $16,542 favorable, what was the actual rate per hour?

F)If total budgeted manufacturing overhead was $359,424 at normal capacity, what was the predetermined overhead rate?

G)What was the standard cost per unit of product?

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ACC 303 Week 11 Final Exam – Liquidity refers to the ability of an enterprise to pay its debts

TRUE FALSE—CONCEPTUAL

 
1.  Liquidity refers to the ability of an enterprise to pay its debts as they mature.
2.  The balance sheet omits many items that are of financial value to the business but cannot be recorded objectively.
3.  Financial flexibility measures the ability of an enterprise to take effective actions to alter the amounts and timing of cash flows.
4.  Companies frequently describe the terms of all long-term liability agreements in notes to the financial statements.
5.  An asset which is expected to be converted into cash, sold, or consumed within one year of the balance sheet date is always reported as a current asset.
6.  Land held for speculation is reported in the property, plant, and equipment section of the balance sheet.
7.  The account form and the report form of the balance sheet are both acceptable under GAAP.
8.  Because of the historical cost principle, fair values may not be disclosed in the balance sheet.
9.  Companies have the option of disclosing information about the nature of their operations and the use of estimates in preparing financial statements.
10.  Companies may use parenthetical explanations, notes, cross references, and supporting schedules to disclose pertinent information.
11.  The accounting profession has recommended that companies use the word reserve only to describe amounts deducted from assets.
12.  On the balance sheet, an adjunct account reduces either an asset, a liability, or an owners’ equity account.
13.  The primary purpose of a statement of cash flows is to report the cash effects of operations during a period.
14.  The statement of cash flows reports only the cash effects of operations during a period and financing transactions.
15.  Financial flexibility is a company’s ability to respond and adapt to financial adversity and unexpected needs and opportunities.
16.  Collection of a loan is reported as an investing activity in the statement of cash flows.
17.  Companies determine cash provided by operating activities by converting net income on an accrual basis to a cash basis.
18.  Significant financing and investing activities that do not affect cash are not reported in the statement of cash flows or any other place.
19.  Financial statement readers often assess liquidity by using the current cash debt coverage ratio.
20.  Free cash flow is net income less capital expenditures and dividends.

 

MULTIPLE CHOICE—CONCEPTUAL

 

 21.     Which of the following is a limitation of the balance sheet?
a.   Many items that are of financial value are omitted.
b.   Judgments and estimates are used.
c.   Current fair value is not reported.
d.   All of these

 

22.     The balance sheet is useful for analyzing all of the following except
a.   liquidity.
b.   solvency.
c.   profitability.
d.   financial flexibility.

 

23.     Balance sheet information is useful for all of the following except to
a.   compute rates of return
b.   analyze cash inflows and outflows for the period
c.   evaluate capital structure
d.   assess future cash flows

 

24.     Balance sheet information is useful for all of the following except
a.   assessing a company’s risk
b.   evaluating a company’s liquidity
c.   evaluating a company’s financial flexibility
d.   determining free cash flows.

 

25.     A limitation of the balance sheet that is not also a limitation of the income statement is
a.   the use of judgments and estimates
b.   omitted items
c.   the numbers are affected by the accounting methods employed
d.   valuation of items at historical cost

 

26.     The balance sheet contributes to financial reporting by providing a basis for all of the following except
a.   computing rates of return.
b.   evaluating the capital structure of the enterprise.
c.   determining the increase in cash due to operations.
d.   assessing the liquidity and financial flexibility of the enterprise.

 

 27.     One criticism not normally aimed at a balance sheet prepared using current accounting and reporting standards is
a.   failure to reflect current value information.
b.   the extensive use of separate classifications.
c.   an extensive use of estimates.
d.   failure to include items of financial value that cannot be recorded objectively.

 

 28.     The amount of time that is expected to elapse until an asset is realized or otherwise converted into cash is referred to as
a.   solvency.
b.   financial flexibility.
c.   liquidity.
d.   exchangeability.

 

29.     The net assets of a business are equal to
a.   current assets minus current liabilities.
b.   total assets plus total liabilities.
c.   total assets minus total stockholders’ equity.
d.   none of these.

 

30.     The correct order to present current assets is
a.   cash, accounts receivable, prepaid items, inventories.
b.   cash, accounts receivable, inventories, prepaid items.
c.   cash, inventories, accounts receivable, prepaid items.
d.   cash, inventories, prepaid items, accounts receivable.

 

31.     The basis for classifying assets as current or noncurrent is conversion to cash within
a.   the accounting cycle or one year, whichever is shorter.
b.   the operating cycle or one year, whichever is longer.
c.   the accounting cycle or one year, whichever is longer.
d.   the operating cycle or one year, whichever is shorter.

 

 32.     The basis for classifying assets as current or noncurrent is the period of time normally required by the accounting entity to convert cash invested in
a.   inventory back into cash, or 12 months, whichever is shorter.
b.   receivables back into cash, or 12 months, whichever is longer.
c.   tangible fixed assets back into cash, or 12 months, whichever is longer.
d.   inventory back into cash, or 12 months, whichever is longer.

 

33.     The current assets section of the balance sheet should include
a.   machinery.
b.   patents.
c.   goodwill.
d.   inventory.

 

34.     Which of the following is a current asset?
a.   Cash surrender value of a life insurance policy of which the company is the bene-ficiary.
b.   Investment in equity securities for the purpose of controlling the issuing company.
c.   Cash designated for the purchase of tangible fixed assets.
d.   Trade installment receivables normally collectible in 18 months.

 

35.     Which of the following should not be considered as a current asset in the balance sheet?
a.   Installment notes receivable due over 18 months in accordance with normal trade practice.
b.   Prepaid taxes which cover assessments of the following operating cycle of the business.
c.   Equity or debt securities purchased with cash available for current operations.
d.   The cash surrender value of a life insurance policy carried by a corporation, the beneficiary, on its president.

 

36.     Equity or debt securities held to finance future construction of additional plants should be classified on a balance sheet as
a.   current assets.
b.   property, plant, and equipment.
c.   intangible assets.
d.   long-term investments.

 

37.     When a portion of inventories has been pledged as security on a loan,
a.   the value of the portion pledged should be subtracted from the debt.
b.   an equal amount of retained earnings should be appropriated.
c.   the fact should be disclosed but the amount of current assets should not be affected.
d.   the cost of the pledged inventories should be transferred from current assets to noncurrent assets.

 

38.     Which of the following is not a long-term investment?
a.   Cash surrender value of life insurance
b.   Franchise
c.   Land held for speculation
d.   A sinking fund

 

39.     A generally accepted method of valuation is
1.   trading securities at market value.
2.   accounts receivable at net realizable value.
3.   inventories at current cost.
a.   1
b.   2
c.   3
d.   1 and 2

 

40.     Which item below is not a current liability?
a.   Unearned revenue
b.   Stock dividends distributable
c.   The currently maturing portion of long-term debt
d.   Trade accounts payable

 

41.     Working capital is
a.   capital which has been reinvested in the business.
b.   unappropriated retained earnings.
c.   cash and receivables less current liabilities.
d.   none of these.

 

42.     An example of an item which is not an element of working capital is
a.   accrued interest on notes receivable.
b.   goodwill.
c.   goods in process.
d.   temporary investments.

 

43.     Long-term liabilities include
a.   obligations not expected to be liquidated within the operating cycle.
b.   obligations payable at some date beyond the operating cycle.
c.   deferred income taxes and most lease obligations.
d.   all of these.

 

44.     Which of the following should be excluded from long-term liabilities?
a.   Obligations payable at some date beyond the operating cycle
b.   Most pension obligations
c.   Long-term liabilities that mature within the operating cycle and will be paid from a sinking fund
d.   None of these

 

45.     Treasury stock should be reported as a(n)
a.   current asset.
b.   investment.
c.   other asset.
d.   reduction of stockholders’ equity.

 

46.     Which of the following should be reported for capital stock?
a.   The shares authorized
b.   The shares issued
c.   The shares outstanding
d.   All of these

 

47.     Which of the following would be classified in a different major section of a balance sheet from the others?
a.   Capital stock
b.   Common stock subscribed
c.   Stock dividend distributable
d.   Stock investment in affiliate

 

48.     The stockholders’ equity section is usually divided into what three parts?
a.   Preferred stock, common stock, treasury stock
b.   Preferred stock, common stock, retained earnings
c.   Capital stock, additional paid-in capital, retained earnings
d.   Capital stock, appropriated retained earnings, unappropriated retained earnings

 

49.     Which of the following is not an acceptable major asset classification?
a.   Current assets
b.   Long-term investments
c.   Property, plant, and equipment
d.   Deferred charges

 

50.     Which of the following is a contra account?
a.   Premium on bonds payable
b.   Unearned revenue
c.   Patents
d.   Accumulated depreciation

 

51.     Which of the following balance sheet classifications would normally require the greatest amount of supplementary disclosure?
a.   Current assets
b.   Current liabilities
c.   Plant assets
d.   Long-term liabilities

 

52.     The presentation of long-term liabilities in the balance sheet should disclose
a.   maturity dates.
b.   interest rates.
c.   conversion rights.
d.   All of the above.

 

53.     Which of the following is not a required supplemental disclosure for the balance sheet?
a.   Contingencies
b.   Financial forecasts
c.   Accounting policies
d.   Contractual situations

 

54.     Typical contractual situations that are disclosed in the notes to the balance sheet include all of the following except
a.   debt covenants
b.   lease obligations
c.   advertising contracts
d.   pension obligations

 

55.     Accounting policies disclosed in the notes to the financial statements typically include all of the following except
a.   the cost flow assumption used
b.   the depreciation methods used
c.   significant estimates made
d.   significant inventory purchasing policies

 

56.     Which of the following best exemplifies a contingency that is reported in the notes to the financial statements?
a.   Losses from potential future lawsuits
b.   Loss from a lawsuit settled out of court prior to the end of the fiscal year
c.   Warranty claims on future sales
d.   Estimated loss from an ongoing lawsuit

 

57.     Which of the following is not a method of disclosing pertinent information?
a.   Supporting schedules
b.   Parenthetical explanations
c.   Cross reference and contra items
d.   All of these are methods of disclosing pertinent information.

 

 58.     Significant accounting policies may not be
a.   selected on the basis of judgment.
b.   selected from existing acceptable alternatives.
c.   unusual or innovative in application.
d.   omitted from financial-statement disclosure.

 

59.     A general description of the depreciation methods applicable to major classes of depreci-able assets
a.   is not a current practice in financial reporting.
b.   is not essential to a fair presentation of financial position.
c.   is needed in financial reporting when company policy differs from income tax policy.
d.   should be included in corporate financial statements or notes thereto.

 60.     It is mandatory that the essential provisions of which of the following be clearly stated in the notes to the financial statements?
a.   Stock option plans
b.   Pension obligations
c.   Lease contracts
d.   All of these

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