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intermediate accounting reporting

Questions and Answers of Intermediate Accounting Reporting

22. What innovation in accounting for pensions is currently being considered in the United Kingdom?
23. What is meant by postretirement benefits, and what is the primary issue in accounting for their costs?
24. Describe the differences between pension plans and other postretirement benefit plans.
25. What is the full eligibility date, and why is it an important date in accounting for postretirement benefits?
26. Describe the major differences between the accounting for pensions and other postretirement benefits.
2. Why is a derivative often an executory contract?Give another example of an executory' contract.
4. Why would a company enter into an interest rate swap?
9. When does partial hedge ineffectiveness occur?
11. What is the notional amount of a derivative? How can the notional amount be misleading?
15. Describe the appropriate treatment of contingent gains.
17. Under what circumstances should the existence of an environmental liability' be considered "probable"?
18. In what ways can segment information assist in the analysis of a company's financial statements?
19. How is a business segment defined under the provisions of FASB Statement No. 131?
20. How large must an internally defined segment be in order for separate financial statement disclosure to be required?
21. Is segment information prepared according to GAAP? Explain.
22. Distinguish between the two primar)^ viewpoints concerning the preparation of interim financial statements.
23. Why should investors be careful in interpreting interim reports?
2. What limitations should be recognized in using EPS data?
4. ViTiat distinguishes a simple capital structure from a complex capital structure?
6. Why are EPS figures adjusted retroactively for stock dividends, stock splits, and reverse stock spUts?
7. What is meant bv "dilution of EPS"'?
8. What is an antidilutive security? WTiy are such securities generally excluded from the computation of EPS?
9. What is the treasun,' stock method of accounting for outstanding stock options, warrants, and rights in computing diluted EPS?
10. Convertible debt that is dilutive requires an adjustment to income. What is the nature of the adjustment?
11. What is the meaning of the tf-converted method of computing EPS?
12. If stock options are actually exercised during the year, how is diluted EPS affected?
13. Why are all convertible securities and options antidilutive when a company is operating at a loss?^e>^
1. How do accounting changes detract from the informational characteristics of comparability' and consisteno'as described in FASB Concepts Statement No. 2?
2. List the three categories of accounting changes and explain briefly why such changes are made.
4. (a) List several examples of areas where changes in accounting estimates are often made. Cb) Explain briefly the proper accounting treatment for a change in estimate, (c) Why is this procedure
6. What information should pro forma statements include?
8. Ca) When should the effects of a change in accounting principle be reported as a restatement of prior periods? (h) Although no justification was given by the APR for selecting certain items for
9. The Dallas Company purchased a delivery van in 1999. At the time of purchase, the vans service life was estimated to be ~ years with a salvage value of S500. The company has been using the
10. (a) List the four types of changes in reporting entities that might occur, (b) How^ are these changes treated? (c) What assumption does the treatment of a change in reporting entity make?
11. Describe the effect on current net income, beginning retained earnings, individual asset accounts, and contra asset accounts when:(a) Depreciation is changed from the straight-line method to an
12. (a) How are accounting errors to be treated? (b)What are counterbalancing errors?
13. The Mendez Manufacturing Company failed to record accrued interest for 1999, S800; 2000, S700;and 2001, $950. What is the amount of overstatement or understatement of the retained earnings
14. Goods purchased FOB shipping point were shipped to Merkley & Co. on December 31 , 2002. The purchase was recorded in 2002, but the goods were not included in ending inventor)^ (a) What effect
15. How does the accounting for a change in depreciation method differ under LAS 8 from the approach used under U.S. GAAP?
16. How does the accounting for a change in accounting principle differ under IAS 8 from the approach used under U.S. GAAP?
4. What is meant by a common-size statement? What are its advantages?
5. What is the purpose of the DuPont framework?
10. How do accounting differences impact the usefulness of financial ratio comparisons?
11. What are the advantages and disadvantages of each of the following types of special-purpose financial statements?(a) Statements translated into the local language.(b) Statements denominated in
12. What is meant by mutual recognition? Is mutual recognition a feasible solution to the issue of allowing foreign companies to register on the stock exchanges of other countries?
13. (a) Why have accountants traditionally preferred to report historical costs rather than current costs in conventional statements? (b) What are some limitations of historical cost statements?
14. What are the three alternatives to reporting historical cost/nominal dollar financial statements, and how do they differ from conventional reporting practice?
15. (a) How are general price indexes computed?(b)What are some of their limitations?
16. If equipment was purchased for $85,000 at the beginning of the year when the Consumer Price Index (CPI) was 160, how would the equipment be recorded on a constant dollar end-of-year balance sheet
17. Indicate whether a company sustains a gain or loss in purchasing power under each of the following conditions.(a) A company maintains an excess of monetary assets over monetary liabilities during
18. (a) Distinguish between realized and unrealized holding gains and losses, (b) Distinguish between the real and inflationary components of total holding gains and losses.^^
21. When financial statements are translated, what is the difference between the resulting debits and credits called? Where is this difference disclosed on the balance sheet?
1. Understand the various classification and measurement issues associated with debt.
17. Under the provisions of IAS 16, what is the credit entr)' when noncurrent operating assets are written up to reflect an increase in market value?
16. What argument is given for repotting noncurrent operating assets at their historical costs instead of at current values?
13- Why are some asset expenditures made subsequent to acquisition recorded as an increase in an asset account and others recorded as a decrease in Accumulated Depreciation?
12. Which of the following items would be recorded as expenses and which would be recorded as assets?(a) Cost of installing machiner}-(b) Cost of unsuccessful litigation to protect patent(c)
10. Why do some companies expense asset expenditures that are under an established monetary'amount?
6. Gaylen Corp. decides to construct a building for itself and plans to use existing plant facilities to assist with such construction, (a) "SXTiat costs will enter into the cost of construction? (b)
5. (a) Why is the "list price" of an asset often not representative of its fair market value? (b) Under these conditions, how should a fair market value be determined?
2. What acquisition costs are included in (a) copyrights,(h) franchises, and (c) trademarks?
1. On the balance sheets of many companies, the largest classification of assets in amount is noncurrent operating assets. Name the items, in addition to the amount paid to the former owner or
6 EXPANDED MAT] e^.Evaluate the different v/ays to compute capitalized interest and properly incorporate midyear loans into the capitalized interest calculations.
18. How is the fixed asset turnover ratio calculated, and what does the resulting ratio measure?
5 Use the fixed asset turnover ratio as a general measure of how efficiently a company is using its property, plant, and equipment.
4 Discuss the pros and cons of recording noncurrent operating assets at their current values.
3 Separate costs into those that should be expensed immediately and those that should be capitalized, and understand the accounting standards for research and development and oil and gas exploration
2 Properly account for noncurrent operating asset acquisitions using various special arrangements, including deferred payment, self-construction, and acquisition of an entire company.
1 Identify those costs to be included in the acquisition cost of different types of noncurrent operating assets.
20. Under the intrinsic value method, how does the accounting for a performance-based stock option plan differ from the accounting for an award plan calling for cash settlements?
19. Under the intrinsic value method, how does the accounting for a performance-based stock option plan differ from the accounting for a fixed stock option plan?
18. (a) Why might a company seek a quasireorganization? (b) WTiat are the steps in a quasi-reorganization?
17. In accounting for the equit\' of foreign companies, what is the primary purpose of equit)- reserves?
15. (a) What is a liquidating dividend? (b) Under w^hat circumstances are such distributions made?
13. The following announcement appeared on the financial page of a newspaper:The Board of Directors of Benton Co., at its meeting on June 15, 2002, declared the regular quarterly dividend on
12. How can retained earnings be restricted by law? In what other ways can retained earnings be restricted?
11. How are errors corrected when they are discovered in the current year? in a subsequent year?
19. Briefly describe the dangers to financial statement users inherent in the use of the fixed asset turnover ratio.e.^'
10. What t>pes of disclosure are required in relation to stock-based compensation plans?
9. What is the primary- difference between the intrinsic value and fair value methods of accounting for stock-based compensation plans? Which method does the FASB recommend?
8. Describe the difference in the accounting for detachable and nondetachable warrants.
5. Why might a company purchase its own stock?
4. How is stock valued when it is issued in exchange for noncash assets or for ser\ices?
3. What rights of ownership are given up by preferred shareholders? WTiat additional protections are enjoyed by preferred shareholders?
2. What is the historical significance of par value?
1. What basic rights are held by each common stockholder?
12 Use both the intrinsic value and fair value methods to account for performancebased stock option plans and plans calling for a cash settlement.
11 Eliminate a retained earnings deficit through a quasi-reorganization.
10 Prepare a statement of changes in stock-^y holders' equity.
9 Explain the background of unrealized gains and losses recorded as direct equity adjustments, and list the major types of equity reserves found in foreign balance sheets.
8 Properly record cash dividends, property dividends, small and large stock dividends, and stock splits.
7 List the factors that impact the retained earnings balance.
6 Distinguish between stock conversions that require a reduction in retained earnings and those that do not.
5 Explain the difference between the intrinsic value and fair value methods, and use both in accounting for a fixed stock option plan.
4 Account for the issuance of stock rights and stock warrants.
3 Use both the cost and par value methods to account for stock repurchases.
2 Record the issuance of stock for cash, on a subscription basis, and in exchange for non cash assets or for services.
1 Identify the rights associated with ownership of common and preferred stock.
PROBLEM 10-44 REACQUISITION OF BONDS Guerra Company authorized the sale of $500,000 of 12%, 10-year debentures on January 1, 1997. Interest is payable on January 1 and July 1. The entire issue was
PROBLEM 10-43 ADJUSTMENT OF BOND INVESTMENT ACCOUNT In auditing the books for the Carmichael Corporation as of December 31, 2002, before the accounts are closed, you find the following long-term

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