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Question
Define liability and when is it recognized?
Answer
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Related questions
Q:
Explain how common-size balance sheets are used by analysts.
Q:
Describe Current Replacement Cost, Net Realizable Value, Fair Value, and the Present Value of Future Net Cash Flow use in valuing assets.
Current Replacement Cost
Q:
Describe Asset recognition, definition, and measurement.
Q:
Classifying financial statement accounts. The balance sheet or income statement classifies various items in one of the following ways: CACurrent assets
NANoncurrent assets
CLCurrent liabilities
NLNoncurrent liabilities
CCContributed capital
RERetained earnings
NIIncome statement item (revenue or expense)
XItem generally does not appear on a balance sheet or an income statement Using the abbreviations in the previous list, indicate the classification of each of the following items under U.S. GAAP and IFRS. If the classifications differ between U.S. GAAP and IFRS, indicate what that difference would be. a. Interest revenue.
b. Factory.
c. Treasury shares repurchased by a corporation.
d. Research and development expenditures.
e. Automobiles used by sales staff.
f. Cash on hand.
g. Promise to a vendor to buy inventory from it next period.
h. Commissions earned by sales staff.
i. Supplies inventory.
j. Note payable, due in six months.
k. Increase in fair value of land held.
l. Income taxes owed to state or city government.
m. Note payable, due in ten years.
n. The portion of the note payable in part n that is due next year.
o. Dividends declared.
Q:
The shareholders' equity section of the balance sheet for a corporation generally does not include
A. dividends paid
B. retained earnings
C. par or stated value of common stock
D. amounts contributed in excess of par or stated value
E. none of the above
Q:
For each of the following items, indicate whether the item meets all of the criteria in the definition of a liability [Yes or No]. If so, how does the firm value it? If not, why not? a.. Bonds payable.
b. Interest accrued but not paid on a note.
c. Confirmed orders from customers for goods and services to be delivered later.
d. Advances from customers for goods and services to be delivered later.
e. Promises by an airline to provide flights in the future in exchange for miles flown,
if customers accumulate a certain number of miles at regular fares.
f. Product warranties.
g. Contractual promises to purchase specific quantities of natural gas for each
of the next 10 years.
h. Damages the company must pay if it loses a pending lawsuit.
i. Future costs of restoring strip-mining sites after completing mining operations.
Q:
Assets are classified as current for reporting purposes when
A. shares of common stock in a company's important supplier are acquired to ensure continued availability of raw materials
B. shares of common stock in another company are acquired to diversify operations
C. expenditures are made in developing new technologies or advertising products
D. they are reasonably expected to be turned into cash or to be sold or consumed during the normal operating cycle of the business.
E. none of the above
Q:
To record the purchase of equipment that is fully financed by the seller, you would
A. debit a liability and credit an asset
B. debit an asset and credit cash
C. debit an asset and credit a liability
D. debit an asset and credit shareholders' equity
E. debit a liability and credit shareholders' equity
Q:
At December 31, Year 1, Bubba Corporation has par value common stock with a par value of $1.50 per share, Additional paid-in capital of $60,000, total shareholders' equity of $100,000, and retained earnings of $25,000. What is the number of common stock shares?
A. 5,000
B. 10,000
C. 15,000
D. 20,000
E. 25,000
Q:
Under both U.S. GAAP and IFRS, the firm must immediately expense all expenditures on _____.
A. research
B. development
C. nonfinancial assets
D. financial assets
E. intangible assets
Q:
Which of the following is true regarding the balance sheet
A. does not provide all the information an analyst wants or needs about a firms resources and the claims on those resources
B. authoritative accounting guidance precludes the recognition of some resources as assets and some obligations as liabilities
C. amounts reported on the balance sheet for assets, liabilities, and shareholders equity do not necessarily reflect current market conditions
D. astute analysts recognize the features of the balance sheet and adjust the reported numbers
E. all of the above
Q:
Firms with tangible long-term assets and predictable cash flows, such as electric utilities, tend to have balance sheets with a
A. high proportion of long-term debt (80% or more).
B. low proportion of long-term debt (20% or less).
C. high proportion of shareholders equity (80% or more).
D. high proportion of cash (80% or more).
E. high proportion of retained earnings (80% or more).
Q:
Comparing firms using a common-size balance sheet rests on the assumption that
A. the size or scale of a business does not affect the relation between a given balance sheet item and total assets.
B. the size or scale of a business does affect the relation between a given balance sheet item and total assets.
C. the large purchaser can negotiate better terms, including lower per-unit prices
D. more negotiating power would appear on the large purchasers balance sheet as proportionately smaller amounts reported for inventory relative to the amounts reported by a smaller purchaser with less negotiating power
E. more negotiating power would appear on the large purchasers balance sheet as proportionately larger amounts reported for accounts payable relative to the amounts reported by a smaller purchaser with less negotiating power
Q:
An impediment to U.S. companies switching from U.S. GAAP to IFRS may come from the IFRS prohibition of LIFO which has negative income tax implications.
Q:
One year is the conventional cutoff for distinguishing a current and a noncurrent asset or liability, because the operating cycle for most firms is one year or less.
Q:
What costs are included in inventory of manufacturing and merchandising firms?
Q:
Working capital is the difference between a firms current assets and its current liabilities.
Q:
Which of the following cost flow assumptions will report ending inventory closest to current cost?
A. LIFO method
B. FIFO method
C. weighted-average method
D. acquisition cost
E. specific identification method
Q:
A firm using FIFO had a beginning inventory of $48,000, an ending inventory of $56,000, and a pretax income of $400,000. If it had used LIFO, its beginning inventory would have been $20,000, and its ending inventory would have been $16,000. From the information provided, one can conclude that:
A. quantities increased and prices decreased
B. quantities decreased and prices increased
C. prices increased but we cannot conclude what happened to quantities
D. quantities decreased but we cannot conclude what happened to prices
E. not enough information to reach a conclusion
Q:
A firm using FIFO had a beginning inventory of $48,000, an ending inventory of $56,000, and a pretax income of $400,000. If it had used LIFO, its beginning inventory would have been $20,000, its ending inventory would have been $16,000, and its pretax income would have been:
A. $374,000
B. $388,000
C. $396,000
D. $404,000
E. $412,000
Q:
(CMA adapted, Dec 95 #27) Jordan Inc. is a profitable company with the goal to maximize cash flow. A valid reason for Jordan not to adopt the last-in, first-out (LIFO) method of inventory valuation is
A. prices are rising.
B. prices are falling.
C. the company has high administrative costs.
D. the reduction effect on inventory.
E. the difficulty in segregating goods in the warehouse.
Q:
Addison Hardware
Addison Hardware began the month of November with 150 large brass switchplates on hand at a cost of $4.00 each. These switchplates sell for $7.00 each. The following schedule presents the sales and purchases of this item during the month of November. Purchases Date of Transaction
Quantity Received
Unit Cost
Units Sold November 5 100 November 7
200
$4.20 November 9 150 November 11
200
4.40 November 17 220 November 22
250
4.80 November 29 100 (CMA adapted, Dec 92 #27) Refer to the Addison Hardware example. If Addison uses weighted average inventory pricing, the gross profit for November would be
A. $1,046
B. $1,482
C. $1,516
D. $1,574
E. $1,146
Q:
Addison Hardware
Addison Hardware began the month of November with 150 large brass switchplates on hand at a cost of $4.00 each. These switchplates sell for $7.00 each. The following schedule presents the sales and purchases of this item during the month of November. Purchases Date of Transaction
Quantity Received
Unit Cost
Units Sold November 5 100 November 7
200
$4.20 November 9 150 November 11
200
4.40 November 17 220 November 22
250
4.80 November 29 100 (CMA adapted, Dec 92 #25) Refer to the Addison Hardware example. If Addison uses FIFO inventory pricing, the value of the inventory on November 30 would be
A. $936
B. $1,046
C. $1,076
D. $1,104
E. $1,204
Q:
Which of the following is/are correct regarding the valuation of inventory
A. GAAP require firms to record inventories at acquisition cost
B. GAAP does not permit firms to revalue inventories above acquisition cost
C. GAAP require firms to write down inventories when their replacement cost, or market value, declines below acquisition cost
D. all of the above
E. none of the above
Q:
Value Company
Value Company's beginning and ending inventories for the fiscal year ended September 30, Year 5, are October 1, Year 4
September 30, Year 5 Raw materials
$15,000
$22,000 Work-in-process
40,000
35,000 Finished goods
8,000
12,000 Production data for the fiscal year ended September 30, Year 5, are Raw materials purchased $ 80,000 Purchase discounts 1,000 Direct labor 100,000 Manufacturing overhead 75,000 Assume Value Company treats all raw materials as direct materials once they enter the production process. Thus, no raw materials are treated as manufacturing overhead. (CMA adapted, Dec 95 #29) Refer to the Value Company example. The total value of inventory to be reported on the balance sheet as of September 30, Year 5, for Value Company is
A. $22,000
B. $35,000
C. $12,000
D. $69,000
E. $96,000
Q:
Value Company
Value Company's beginning and ending inventories for the fiscal year ended September 30, Year 5, are October 1, Year 4
September 30, Year 5 Raw materials
$15,000
$22,000 Work-in-process
40,000
35,000 Finished goods
8,000
12,000 Production data for the fiscal year ended September 30, Year 5, are Raw materials purchased $ 80,000 Purchase discounts 1,000 Direct labor 100,000 Manufacturing overhead 75,000 Assume Value Company treats all raw materials as direct materials once they enter the production process. Thus, no raw materials are treated as manufacturing overhead. (CMA adapted, Dec 95 #28) Refer to the Value Company example. Cost of goods sold for the year ended September 30, Year 5, for Value Company is
A. $262,000
B. $252,000
C. $260,000
D. $248,000
E. $224,000
Q:
A department store had items in its inventory at the end of the year that had a recorded book value of $10,000 and, because of fashion changes, a market value of only $7,000. The department store failed to write down these inventory items to market value. To keep the obsolete condition of the inventory items away from its auditors, the firm shipped the goods to a remote warehouse. The effect of this error was to
A. understate the inventory turnover ratio
B. overstate the cost of goods sold to sales percentage
C. overstate the total assets turnover ratio
D. understate net income
E. none of the above
Q:
IFRS specifies that, in the context of inventories, market means
A. replacement cost, only
B. net realizable value, only
C. replacement cost, except that market may not exceed net realizable value and may not be less than net realizable value reduced by a normal profit margin.
D. replacement cost, except that market may not exceed net realizable value and may not be less than present value of future cash flows.
E. replacement cost, except that market may not exceed net realizable value and may not be less than the total amount of undiscounted future cash flows
Q:
Discuss the application of the allowance method for sales returns.
Q:
Which of the following is/are not true regarding repairs?
A. Repairs include routine costs such as for cleaning and adjusting.
B. Repairs include the costs of restoring an assets service potential after breakdowns or other damage.
C. Repairs do not extend the estimated service life or increase its productive capacity of an asset beyond original expectations.
D. U.S. GAAP and IFRS treat repair expenditures as expenses of the period when the firm makes the expenditure.
E. Distinguishing repairs from maintenance is difficult but typically not necessary because expenditures for both are period expenses.