1. Berful Industries, a US corporation using US GAAP accounting standards, asks your advice in preparing its year-end financial statements. Indicate your answer by checking the appropriate line next to your selected answer. a. Berful is going to select double-declining-balance depreciation for the new assets it acquires this year instead of the straight-line method. Increases net income in year of sale? Yes No b. Berful has a machine that has gold electrical connectorsthe price of gold has risen so much that the fair market value of the machine has risen dramatically. Does this increase in fair market value for the machine require Berful to write up the value of the machine in its accounts and increase depreciation expense associated with the machine? Yes No c. Berful plans to sell treasury stock at a gain this year. Does this gain on the sale of treasury stock increase net income? Yes No d. Are Berful's liabilities required to be valued at the historical cost value? Yes No e. Berful would like to report as revenue the normal selling price for goods it sends to existing customers who have not ordered them, hoping that they will buy them anyway. Is this acceptable? Yes No f. Berful plans to issue new common shares this year at a price above par value. Increases net income? Yes No Yes g. Berful plans to change from LIFO to FIFO in measuring the cost of its ending inventory and cost of goods sold, in a period of rising prices. Does this increase net income? No h. Berful has used the direct write-off method to account for bad debts, but must change to the allowance method, in a year in which it has no write-offs, but expects to discover next year that some of the current year sales are uncollectible. Does this change increase net income? Yes No i. Berful wishes to accelerate the timing of the recognition of revenue by collecting cash in advance of performing services or delivering goods. Does this increase net income? Yes No J. Berful is in negotiations with an existing customer over the price to charge for a large sale. He has ordered the goods sent to the customer, expecting the negotiations to be completed soon, and is recording the sale at the usual price rather than the lower price the customer wants. Is this income at the time of shipping? Yes No k. Berful is considering purchasing a machine, but is concerned that the delivery charges will drive down its reported profit in the year of purchase. Will these costs decrease net income in the year of purchase? Yes No 1. Berful classifies a compensating balance checking account- restricted as to use-as cash. Is this properly reported as cash? Yes No m. Berful is planning to treat as part of the cost its truck, repairs and maintenance costs incurred, spreading the income statement effect over several years as depreciation expense. Is this appropriate? Yes No n. Berful plans to undertake a large research and development project this year, planning on treating as an asset the cost of the R & D activity. Is this correct? Yes No o. Berful is planning to acquire another company this year, and hopes to avoid the recognition of goodwill. Will the recognition of goodwill reduce the net income of Berful in the year of acquisition? Yes No p. Berful is reducing the dividends it declares. Will this increase net income in the year declared? Yes No 9. Berful plans to acquire land to use as a future plant site. Will the company depreciate the land when it is used as a building site for a new plant? Yes No t. Berful purchased a patent from another company this year, believing that the patent's value was grossly understated. It intends to value the patent for balance sheet purposes at its fair market value rather than cost. Is this correct? Yes No s. Berful is being sued in court in a contract dispute. Its attorneys indicate that it is probable that the firm will lose when the court renders its verdict next year and have to pay the full amount sought by the plaintiffs. Is this loss required to be reported this year or next year? This year Next year t Berful plans to purchase treasury stock this year, and to classify it as a current asset on its balance sheet carried at its historical cost. Is this correct? Yes No 2. Calculate the following, and place the calculated solution on the appropriate line. In all cases, assume the companies that are the subject of the question are US corporations using US GAAP