Now FASB required that all employee stock options should be expensed on income statement. On Jan. 2005, AA company granted total $100,000 (fair value) of stock options to the employee. The exercise price is equal to the market price at the grant time. The employees cannot exercise the options until 2007. According to the new requirement, the company should record an expense $50,000 for 2005 and $50,000 for 2006. During 2008, all options are exercised. What is the effect on the accruals for 2005 ? a.Decrease b.No effect c.Increase d.not determinable JK company has the following balances on the 2008 B/S: current assets=70,000, long-term assets=250,000, current liability=40,000, long-term debt=130,000, and stockholders equity=150,000. The company has an operating lease contract. It promises to pay a lessor $10,000 annually for the next three years. The company s average borrowing rate (discount rate) is 10%. Which one is correct if the lease is recorded as a capital lease? a.Working capital will be increased b.Current ratio will be increased c.ROA will be increased d.None of the above Which one is not a correct practice of inventory accounting under the GAAP? a.Liquidity problems can arise from the failure to convert current assets into cash in a timely manner or from excessive bad debt losses. b.Under inflation, use of FIFO can result in distortions of earnings when normal inventory levels are depleted because of LIFO liquidation c.the amount of inventory disclosed on the financial statements does not represent the future cash receipts expected to be generated. The following items discusses the practices related to the treasury stock. Please choose the item that is not a correct practice. a.Treasury stock is the own common share repurchased by the firm. b.Treasury stock is recorded as an asset on B/S c.To increase the stock price, firms may have treasury stocks. d.The profit from sales of the treasury stocks is recorded as a capital increase. Which one is not a correct practice under the GAAP for the segment reporting? a.The segment reporting is a line-of-business reporting and is a mandatory disclosure. b.Segment reporting can be done by each operating segment. c.Segment reporting can help investors to forecast sales and earnings for future. d.Segment reporting is included as one of the basic financial statements. Which one is not a main objective of the Sarbanes-Oxley Act? a.it requires the creation of PCAOB. b.Mainly it intends to prevent myopic investment of the individual investors. c.It requires CEO and CFO certification on the financial statements. d.One of the main goals of the Act is to improve the governance system inside the public accounting firms. Now FASB required that all employee stock options should be expensed on income statement. On Jan. 2005, AA company granted total $100,000 (fair value) of stock options to the employee. The exercise price is equal to the market price at the grant time. The employees cannot exercise the options until 2007. According to the new requirement, the company should record an expense $50,000 for 2005 and $50,000 for 2006. During 2008, all options are exercised. What is the effect on the total equity at the end of 2006? a.not determinable b.no effect c.increase d.decrease