1. One type of compensation provided by the time value of money is compensation for expected consumption.

a. True

b. False

2. One type of compensation provided by the time value of money is compensation for risk. a. True

b. False

3. Compounding is the conversion of future cash flow amounts to their present value.

a. True

b. False

4. Discounting is the conversion of future cash flow amounts to their present value.

a. True

b. False

5. The interest that accrues on both the principal and the past unpaid accrued interest is called compound interest

. a. True

b. False

6. As of December 31, 2016, the Williamsburg Company reported a deferred tax asset of $60,000 related to accrued,unpaid warranty costs. However, since profits have been declining, Williamsburg decides that it is more likely than not that $24,000 of the deferred tax asset will not be realized. The entry to record the valuation allowance would include a

a. debit to Income Tax Expense for $60,000.

b. credit to Income Tax Expense for $24,000.

c. debit to Allowance to Reduce Deferred Tax Asset to Realizable Value for $24,000.

d. credit to Allowance to Reduce Deferred Tax Asset to Realizable Value for $24,000

7. In 2016, its first year of operations, Wilber Company reported pretax accounting income of

$60,000. Included in the$60,000 was an expense for accrued, unpaid warranty costs of $8,000,

which are not deductible until paid for incometax purposes. Wilber's income tax rate was 20%.

The entry to record the income tax expense would include a

a. credit to Income Tax Expense for $12,000.

b. credit to Income Taxes Payable for $12,000.

c. credit to Deferred Tax Liability for $1,600.

d. debit to Deferred Tax Asset for $1,600.

8.Bourne Company received rent in advance of $9,000 on December 31, 2016, which was taxable when received for income tax purposes. The company's effective tax rate was 30%, and this was the only temporary difference. Which of the following should be reported on the December 31, 2016 balance sheet?

a. $9,000 as a current deferred tax liability

b. $2,700 as a current deferred tax liability

c. $2,700 as a current deferred tax asset

d. $9,000 as a current deferred tax asset

9.On December 31, 2015, Fredericksburg, Inc. had no temporary differences that created deferred income taxes. On January 2, 2016, a new machine was purchased for $30,000. Straight-line depreciation over a four-year life (no residual value) was used for financial accounting. Depreciation expense for tax purposes was

$11,000 in 2016,

$9,000 in 2017,

$6,000 in 2018, and

$4,000 in 2015.

In each year, the income tax rate was 20% and Fredericksburg had no other items that created differences between pretax financial income and taxable income. Fredericksburg reported the following pretax financial income for 2016 through 2019: 2016 $50,000 2017 40,000 2018 30,000 2019 60,000 37. Refer to Exhibit 18-1. The entry to record income taxes on December 31, 2017, would include a

a. debit to Deferred Tax Liability for $300.

b. credit to Income Taxes Payable for $8,000.

c. debit to Income Tax Expense for $7,700.

d. credit to Deferred Tax Liability for $300.

10.Which of the following statements regarding current and deferred income taxes is not correct? a. The amount of income tax expense must be allocated to various components of comprehensive income. b. The income tax obligation is determined by applying the historical tax rates to the taxable income for the year. c. The valuation allowance account is subtracted from the deferred tax asset account on the balance sheet. d. Rent received in advance that will be earned within the next 12 months results in the creation of a current deferred tax asset

11.Which of the following statements regarding current and deferred income taxes is not correct? a. The amount of income tax expense must be allocated to various components of comprehensive income. b. The income tax obligation is determined by applying the historical tax rates to the taxable income for the year. c. The valuation allowance account is subtracted from the deferred tax asset account on the balance sheet. d. Rent received in advance that will be earned within the next 12 months results in the creation of a current deferred tax asset

12. Which of the following cash flows is classified as an investing cash flow?

a. payment received under an operating lease

b. purchase of an asset leased under a sales-type lease

c. interest portion of payment received under a direct financing lease d. reduction of a direct financing lease receivable

13.Which of the following is not a required disclosure by a lessor of a sales-type lease? a. the guaranteed residual value accruing to the benefit of the lessor

b. total contingent rentals included in revenue for the period

c. unearned income

d. a general description of the lessor's leasing arrangements

14.A lease that transfers substantially all the risks and benefits of ownership from the lessor to the lessee is referred to as

a. a capital lease.

b. a capitalization lease.

c. an operating lease.

d. a transfer lease.

15.If all of the following are provided for by a lease contract, which one is not included in minimum lease payments for the lessee?

a. payments resulting from failure to renew the lease

b. unguaranteed residual value

c. bargain purchase price

d. guaranteed residual value

16. On January 1, 2016, Pearson Company signed a lease agreement requiring six annual payments of $60,000, beginning December 31, 2016. Pearson's incremental borrowing rate was 9% and the lessor's implicit rate, known by Pearson, was 10%. The present value factors of an ordinary annuity of $1 for six periods for interest rates of 9% and 10% are 4.48592 and 4.35526, respectively. 37.

What would be the balance of the lease obligation on January 1, 2017, for financial reporting purposes after the lease payment? (Round answers to the nearest dollar)

a. $0

b. $166,779

c. $227,447

d. $233,379

17.What would be the interest expense for 2016 (round answers to the nearest dollar)?

a. $21,003

b. $22,746

c. $24,224

d. $26,132

18.What would be the balance of the lease obligation for financial reporting purposes on December 31, 2017, after the lease payment (round answers to the nearest dollar)?

a. $194,383

b. $167,979

c. $190,192

d. $233,379

19.If a lessee classifies a lease as a capital lease and uses the straight-line method of depreciation, what is the amount to be amortized over the lease term?

a. the original amount capitalized less the present value of the guaranteed residual value (if applicable)

b. the original amount capitalized less the unguaranteed residual value c. the original amount capitalized less the guaranteed residual value (if applicable)

d. fair value of the leased property

20.On January 1, 2016, Reynolda Co. leased equipment by signing a five-year lease that required five payments of$30,000 due on January 1 of each year with the first

payment due January 1, 2016. The equipment remains theproperty of the lessor at the end of the

lease and Reynolda does not guarantee any residual value. Using a 10% costof capital, Reynolda capitalized the lease on January 1, 2016, in the amount of $125,096. What is the amount of current portion of the lease obligation Reynolda should report on the December 31, 2017,

balance sheet?

a. $7,461

b. $20,490

c. $22,539

d. $30,000