单选题Question
The following information has been gathered regarding Williams Investing, which
uses the straight-line method for depreciation.
Depreciable life of 8 years on its assets. Net book
value of assets is $ 40 million. Accumulated depreciation is $
28 million. Salvage value is $12 million. It
recently revised the estimates for the remaining useful life of its assets from
4 years to 6 years. Net income before the change is $13
million. The effective tax rate for the firm is 40 percent.
单选题
Depreciation expense for Williams Investing will decrease by:
A. $ 2.3 million.
B. $ 3.6 million.
C. $ 1.4 million.
【正确答案】
A
【答案解析】To find the change in depreciation we have to find the annual depreciation with the original assumptions and the annual depreciation going forward with the new assumptions.
First find the original cost of the assets = $ 40 book value + $ 28 accumulated depreciation = $68. Original depreciation per year = ( $68 original cost- $12 salvage value)/8 years = $ 56/8 years = $ 7 depreciation per year.
New depreciation = ( $ 40 book value - $12 salvage)/6 years = $ 4.7
The change in depreciation = $ 7 - $ 4.7 = $ 2.3 less, or a decrease of $ 2.3
单选题
Net income for Williams Investing will increase by:
A. 13.85%.
B. 10.62%.
C. 15.39%.
【正确答案】
B
【答案解析】Net income will increase by 2.3 (1-0.4) = $1.38 million or on a percentage basis = 1.38/13 = 10. 62%.
单选题
A firm ended the last period with inventory of $ 4.0 million and a last
in, first out (LIFO) reserve of $175000. During the year, it made purchases of $
2. 0 million and reported sales of $ 5.5 million with a gross margin of 0.32. At
the end of the year, it reported a LIFO reserve of $ 75000. What is the value of
the firm' s cost of goods sold (COGS) on a first in, first out (FIFO) basis ?
A. $ 384000O.
B. $ 3740000.
C. $ 3640000.
【正确答案】
A
【答案解析】With sales of $ 5.5 million and a gross margin of 0.32, the COGS (on a LIFO basis) is $ 3.74 million. In order to convert this to a FIFO approximation, we need to subtract the change in LIFO reserve during the year: $3740000-($75000-$175000)= $ 3840000.
单选题
Which of the following statements about a company that capitalizes
significant costs this year is least likely correct? Compared with expensing, a
company that capitalized these costs would:
A. show smoother reported income and lower return on assets in future
years.
B. have higher cash flow from operations and lower cash flow from
investing.
C. have lower profitability ratios this year and higher cash flows from
operations.
【正确答案】
C
【答案解析】In the initial year capitalizing costs increases profitability, both in absolute terms and relative to assets and sales.
单选题
Which of the following situations will most likely require a company to
record a valuation allowance on its balance sheet?
A. To report depreciation, a firm uses the double-declining balance method
for tax purposes and the straight-line method for financial reporting
purposes.
B. A firm with deferred tax assets expects an increase in the tax
rate.
C. A firm is unlikely to have future taxable income that would enable it to
take advantage of deferred tax assets.
【正确答案】
C
【答案解析】A valuation allowance is a contra account (offset) against deferred tax assets that reflects the likelihood that the deferred tax assets will never be realized. If a firm is unlikely to have future taxable income, it would be unlikely to ever use its deferred tax assets, and therefore must record a valuation allowance.
单选题
The best way to compute an inventory turnover ratio is to use:
A. LIFO for COGS and FIFO for average inventory.
B. FIFO for both COGS and average inventory.
C. LIFO for both COGS and average inventory.
【正确答案】
A
【答案解析】Inventory turnover makes no sense at all for firms using LIFO due to the mismatching of costs ( the numerator is current while the denominator is historical). FIFO based inventory is relatively unaffected by price changes and is a good approximation of actual turnover. In this way, current costs are matched in the numerator and denominator.
单选题
During periods of rising prices and stable or growing inventories, the
most informative inventory accounting method for income statement purposes is:
A. FIFO because it allocates historical prices to cost of good sold (COGS)
and provides a better measure of current income.
B. LIFO because it allocates historical prices to cost of good sold (COGS)
and provides a better measure of current income.
C. LIFO because it allocates current prices to cost of good sold (COGS) and
provides a better measure of current income.
【正确答案】
C
【答案解析】LIFO is the most informative inventory accounting method for income statement purposes in periods of rising prices and stable or growing inventories. It allocates the most recent purchase prices to COGS, and thus provides a better measure of current income and future profitability.
单选题
TY Corp. is a manufacturing firm with a reputation for very aggressive
financial management. The company has a very high ROE of 28 percent and a
spectacular return on assets of 42 percent. Which of the
following is the most likely explanation of these ratios? TY Corp. :
A. has just started using accelerated depreciation methods.
B. leases most of its fixed assets.
C. does not capitalize most of its product development costs.
【正确答案】
B
【答案解析】The high ROE is indicative of operating leases, artificially lowering leverage and assets and inflating performance ratios.
单选题
Ralph & Sons, Inc., uses the straight-line method of depreciation
for its long-lived assets. After a recent meeting with the independent
accountants where industry depreciation practices were discussed, Ralph decided
to switch to the double-declining balance method. In the year in which the
switch occurs, Ralph should report this change as:
A. a change in accounting principle and report its effect on prior period
results as a non-recurring item, net of tax.
B. an accounting error and directly adjust retained earnings.
C. a change in accounting principle and report its effect on prior earnings
as part of operating earnings.
【正确答案】
A
【答案解析】Under GAAP, a change in the method of depreciation is considered a change in accounting principle and hence the effects on prior period earnings will have to be disclosed as a non-recurring item, net of tax.
单选题
Selected financial data from Krandall, Inc. ' s balance sheet for the
year ended December 31 was as follows (in $ ) :
Cash
$1100000
Accounts Payable
$ 400000
Accounts Receivable
300000
Deferred Tax Liability
700000
Inventory
2400000
Long-term Debt
8200000
Property, Plant & Eq.
{{U}}8000000{{/U}}
Conunon Stock
1000000
Total Assets
11800000
Retained Earnings
{{U}}1500000{{/U}}
LIFO Reserve at Jan. 1
600000
Total Liabilities & Equity
11800000
LIFO Reserve at Dec. 31
900000
Krandall uses
the last in, first out (LIFO) inventory cost flow assumption. The tax rate is 40
percent. If Krandall used first in, first out (FIFO) instead of LIFO and paid
any additional tax due, its assets-to-equity ratio would be closest to:
A. 4.06.
B. 3.63.
C. 3.73.
【正确答案】
A
【答案解析】With FIFO instead of LIFO:
Inventory would be higher by $ 900000, the amount of the ending LIFO reserve.
Cumulative pretax income would also be higher by $ 900000, so taxes paid would be higher by 0.40 × $ 900000 = $ 360000. Therefore cash would be lower by $ 360000.
Cumulative retained earnings would be higher by (1-0.40)×$ 900000 = $ 540000.
So assets under FIFO would be $ 11800000 + $ 900000 - $ 360000 = $ 12340000 and equity would be $1000000 + $1500000 + $ 540000 = $ 3040000. The assets-to-equity ratio would be $12340000/$ 3040000 =4.06.
单选题
A company issued a bond with a face value of $ 67831, maturity of 4
years, and 7 percent coupon, while the market interest rates are 8
percent. What is the unamortized discount when the bonds are
issued?
单选题
Lakeside Co. recently determined that one of its processing machines
has become obsolete three years early and, unexpectedly, has no salvage value.
Which of the following statements is most consistent with this discovery?
A. Historically, economic depreciation was understated.
B. Lakeside Co. will owe back taxes.
C. Historically, economic depreciation was overstated.
【正确答案】
A
【答案解析】Historically, economic depreciation was understated. If an asset becomes obsolete and its usefullife is less than expected, accounting methods for depreciation will understate the economic depreciation. In addition, if there is no salvage value when positive salvage value was expected, the understatement problem is compounded.
单选题
In 2005, Carpet Company decides to change from the straight-line
method of depreciation to the sum of the year' s digits method. The following
information is available :
Pre-2005
2005
Straight Line Depreciation
$ 1600000
$ 400000
Sum of the Years Digits
$ 2300000
$ 500000
On
its 2005 financial statements, Carpet will report:
A. $ 400000 depreciation expense in the 2005 income statement and $
800000 separately as a change in accounting principle net of taxes.
B. $ 500000 depreciation expense in the 2005 income statement and $
700000 separately as a change in accounting principle net of taxes.
C. $1200000 depreciation expense in the 2005 income statement and
include a footnote of explanation including the tax effect.
【正确答案】
B
【答案解析】A change in depreciation method retroactively applied is a change in accounting method and must be separately disclosed on the income statement net of taxes. The amount of the disclosure is ( $ 2300000 - $1600000 = ) $ 700000 relating to the prior periods. The change from $ 400000 to $ 500000 in current depreciation is current and does not require separate disclosure.
单选题
Annual interest expense is the:
A. sum of the annual coupon payments.
B. amount paid to creditors in excess of par.
C. book value of the debt times the market interest rate when it was
issued.
【正确答案】
C
【答案解析】Annual interest expense is the book value of the debt times the interest rate at the time of issuance.
单选题
Selected information from the financial statements of Salvo Company
for the years ended December 31,2003 and 2004 is as follows ( in $ millions) :
2003
2004
Sales
$ 21
$ 23
Cost of Goods Sold
(8)
(9)
Gross Profit
13
14
Cost of Franchise
(6)
0
Other Expenses
(6)
(6)
Net Income
$ 1
$ 8
Cash
$ 4
$ 5
Accounts Receivable
6
5
Inventory
9
7
Property, Plant & Equip. (net)
12
15
Total Assets
$ 31
$ 32
Accounts Payable
$ 7
$ 5
Long-term Debt
10
5
Common Stock
8
8
Retained Earnings
6
14
Total Liabilities and Equity
$ 31
$ 32
Salvo's
return on average total equity for 2004 was ( $8/( ( $8 + $6) + ( $8 + $14) )/2
=) 44.4 percent. If Salvo had amortized the cost of the
franchise acquired in 2003 over six years instead of expensing it, Salvo' s
return on average total equity for 2004 would have decreased from 44.4 percent
to:
A. 38.9 percent.
B. 35.6 percent.
C. 31.1 percent.
【正确答案】
C
【答案解析】If the franchise cost had been amortized over six years beginning in 2003, net income in 2003 would have been $ 6 million instead of $1 million due to the cost of franchise expense of $ 6 million being eliminated and replaced by franchise amortization of $1 million. Net income in 2004 would have been reduced by the franchise amortization to $ 7 million instead of $ 8 million. On the equity side, retained earnings at the end of 2003 would have been $11 million ( $ 5 million higher), and total equity for 2003 would have been ( $ 8 + $11 = ) $19 million. Retained earnings for 2004 would be the 2003 retained earnings of $11 million increased by 2004 net income of $ 7 million for a total of $18 million, and total equity for 2004 would be ($8+$18=)$26 million. If the franchise cost were amortized, return on total equity for 2004 would be( $7/(19 +26)/2 = ) 31.1 percent.
单选题
Are the following statements about trade debt and customer advances
true or false? Statement 1: Trade debt is reported in the balance sheet at the
present value of the future expected cash flows discounted at the firm' s
weighted-average cost of capital. Statement 2: For analytical purposes, customer
advances should be viewed as a prediction of future revenues rather than as an
expected cash outflow. Statement 1
Statement 2 ①A.
False
True ②B. False
False ③C.
True True
A. ①
B. ②
C. ③
【正确答案】
A
【答案解析】Trade (operating) debt is reported in the balance sheet at the expected undiscounted value. Customer advances are satisfied by providing goods or services. Thus, customer advances can be viewed as a prediction of future revenues rather than expected cash outflows.
单选题
Which of the following is not the result of using an straight line
depreciation method instead of accelerated depreciation method in the early
years of asset's life?
A. lower depreciation expense.
B. higher assets.
C. lower net income.
【正确答案】
C
【答案解析】These relationships are reversed in the latter years of the asset' s life if the firm' s capital expenditures decline.
单选题
A manufacturing firm reports the following in its financial
statements: Gross plant and equipment
$ 2700000 Depreciation expense
$ 235000
Accumulated depreciation
$1850000
The average depreciable life of plant and equipment is:
A. 7.87 years.
B. 3.62 years.
C. 11.49 years.
【正确答案】
C
【答案解析】The average depreciable life = Gross investment/Depreciation expense 11.49 = $ 2700000/$ 235000
单选题
If a lease is capitalized, as compared to being treated as an operating lease, the effect on the current ratio and the debt/equity ratio will be:
Current Ratio Debt/Equity Ratio
①A. decrease decrease
②B. decrease increase
③C. increase decrease
【正确答案】
B
【答案解析】With capital leases the firm' s assets, current liabilities, and long-term liabilities will be greater than if the lease was an operating lease. With the debt to equity ratio, the liability is in the numerator, which results in an increase in the ratio. With the current ratio, current liabilities are increased and are in the denominator which results in a decrease in the ratio.
单选题
Which of the following definitions used in accounting for income taxes
is least accurate?
A. An income tax expense is an expense resulting from current period pretax
income and change in deferred taxes.
B. A valuation allowance is a reserve against deferred tax assets based on
the likelihood that those assets will not be realized.
C. A deferred tax liability is a balance sheet amount related to the
difference between tax expense and taxes payable that is expected to be
recovered from future operations.
【正确答案】
C
【答案解析】Deferred tax liability refers to balance sheet amounts related to the difference between tax expense and taxes payable that is expected to result in future cash outflows.
单选题
During periods of decreasing prices, what type of inventory accounting
method should a firm use to report higher net income? The company should use:
A. FIFO because during periods of decreasing prices, the COGS will be lower,
resulting in a higher net income.
B. FIFO because during periods of decreasing prices, the COGS will be
higher, resulting in a higher net income.
C. LIFO because during periods of decreasing prices, the COGS will be lower,
resulting in a higher net income.
【正确答案】
C
【答案解析】In periods of falling prices, LIFO results in lower COGS, and therefore higher net income than FIFO, because LIFO assumes the most recently purchased ( lower cost) goods are sold first.
单选题
During an accounting period a company has the following sequence of
transactions with a beginning inventory of zero:
Purchases Sales
100units at $ 210 80units at $ 240
90units at $ 225 90units at $
250
The company' s cost of goods
sold (COGS) using FIFO for inventory accounting, and its ending inventory using
LIFO, are closest to: FIFO COGS
LIFO ending inventory ①A. $
36750 $ 4200 ②B.
$ 36750 $ 4500
③C. $ 37050 $ 4200
单选题
Which of the following statements about leases is least accurate?
A. If a lease is a capital lease and the lessor is not a dealer in the
leased asset, the lease is a direct financing lease.
B. If the lease is a capital lease and the lessor is a dealer or seller of
the leased equipment, the lease is a sales-type lease on the books of the
lessor.
C. In a direct financing lease, the gross profit is recognized at the lease
inception, while in a sales-type lease it is not.
【正确答案】
C
【答案解析】C is reversed. Gross profit is recognized at the inception for the sales-type lease.
单选题
Pischke Motors provided you with the following financials:
Beginning LIFO Reserve $ 2484 Cost of Goods Sold (COGS)
using LIFO $ 3988 COGS using FIFO of $ 2004
What is the ending LIFO reserve?
单选题
In general, as compared to companies with operating leases, companies
with capital leases report :
A. lower working capital and asset turnover.
B. lower cash flow from operations, higher cash flow from financing.
C. higher debt to equity and return on equity ratios (in the early
years)
【正确答案】
A
【答案解析】Working capital equals current assets minus current liabilities and is lower under a capital lease because the current portion of the capital lease increases current liabilities. Total asset turnover is lower because total assets are higher under a capital lease. Companies with capital leases report higher debt to equity (there is an asset and liability increase and net income is lower in the early years, decreasing the denominator). The return on equity ratio is lower with a capital lease because the numerator, net income, is decreased proportionally more than the denominator, equity.
单选题
Which accounting methods are preferable for income statements and
balance sheets?
A. LIFO for the balance sheet and FIFO for the income statement.
B. LIFO for both income statements and balance sheets.
C. LIFO for income statements and FIFO for the balance sheet.
【正确答案】
C
【答案解析】LIFO allocates the most recent prices to the cost of goods sold and provides a better measure of current income. For balance sheet purposes, inventories based on FIFO are preferable since these values most closely resemble current cost and economic value.
单选题
Given the following inventory information about the Buckner
Company: Year-end LIFO inventory of $ 6500.
Year-end LIFO reserve of $ 2500. The current year' s LIFO cost
of goods sold is $15000. After tax income is $1600.
The previous year's LIFO reserve was $ 2000. What is the
firm' s after tax net income on a FIFO basis if the firm' s tax rate is 40
percent?
A. $ 2100.
B. $1300.
C. $1900.
【正确答案】
C
【答案解析】FIFO net income = LIFO net income +change in LIFO res.) (1-t) = 1600 + [(2500 -2000) ×(1-0.4)] = $1900.
单选题
During deflation and decreasing inventory quantities, a company using
last-in first-out (LIFO) rather than first-in first-out (FIFO). What is the
effect on inventory turnover and net profit mar-gin?
Inventory Turnover Net Profit Margin ①A.
higher
lower ②B. higher
higher ③C.
lower higher
A.①
B. ②
C.③
【正确答案】
C
【答案解析】Inventory turnover, defined as COGS/Average inventory, if often meaningless for LIFO companies due to the mismatching of costs. The numerator represents current costs, whereas the denominator reports outdated historical costs. Thus, the turnover ratio under LIFO will, when prices decrease, trend lower because of small COGS and larger inventory. Net profit margin, defined as EAT/Sales, is higher during periods of decreasing profits for LIFO companies. LIFO leads to a smaller COGS, which reduces EAT, without affecting sales.
单选题
Calculate the average age of the fixed assets:
A. 4 years.
B. 4.5 years.
C. 5.5 years.
【正确答案】
A
【答案解析】400/100 = 4 years.
单选题
An impairment write-down results in a decrease in all of the following
financial statement items and ratios EXCEPT:
A. future depreciation expense.
B. stockholders' equity.
C. the debt-to-equity ratio.
【正确答案】
C
【答案解析】An impairment write-down reduces equity and has no effect on debt. The debt-to-equity ratio would therefore increase.
单选题
Longboat, Inc. sold a luxury passenger boat from its inventory
on December 31,2005 for $ 2000000. It is estimated that Longboat will incur $
100000 in expenses servicing the warranty during its 5-year obligation.
Longboat' s tax rate is 30 percent. To account for the tax
implications of the warranty obligation, Longboat should:
A. record a decrease in taxes payable of $ 30000.
B. record a deferred tax asset of $ 30000.
C. record a deferred tax liability of $ 30000.
【正确答案】
B
【答案解析】Warranty expense should be recorded when the inventory item covered by the warranty is sold.
A deferred tax asset is created when warranty expenses are accrued on the financial statements but are not deductible on the tax returns until the warranty claims are paid. The full amount of the obligation, $100000, is recorded as an expense, with a deferred tax asset of $ 30000. Note that a deferred tax assets results when taxable income is more than pretax income and the difference is likely to reverse(warranty will be paid) in future years.
单选题
Which of the following is least likely to be an incentive for
structuring a lease as an operating lease instead of a capital lease?
A. The period of use is short relative to the overall life of the
asset.
B. The lessee is in a high tax bracket and the lessor is in a low tax
bracket.
C. The corporate bond indenture contains specific covenants relating to
financial policies that the company must follow.
【正确答案】
B
【答案解析】Tax benefits are realized if the lessee is in a low tax bracket and the lessor is in a high tax bracket. An operating lease allows the lessor to retain the (greater) tax benefits from depreciating the asset. For example, the lessor benefits from using accelerated depreciation on its tax returns.
单选题
The Latham Corporation entered into a lease for 5 years that requires
payments of $10000 per year. If the lease is classified as a capital lease, what
is the amount recorded as debt for this lease at the end of one period if the
appropriate discount rate is 10 percent'?
A. $ 30326.
B. $ 37908.
C. $ 31699.
【正确答案】
C
【答案解析】Capital lease obligation = PV of lease first period' s loan amortization
37908×0.1 =3791 to interest
10000 payment - 3791 interest = 6209 to principal
Capital lease obligation after the first year = $ 37908 -6209 = $ 31699.
Alternate solution: N =4, I/Y = 10%, PMT = $10000, CPT→PV = $ 31699.
单选题
An analyst is comparing a firm to its competitors. The firm has a
deferred tax liability and is expected to continue to grow in the foreseeable
future. How should the liability be treated for analysis purposes?
A. It should be treated as equity at its full value.
B. It should be treated as a liability at its full value.
C. The present value should be treated as a liability with the remainder
being treated as equity.
【正确答案】
A
【答案解析】The firm has a deferred tax liability and is expected to continue to grow in the foreseeable future. The liability should be treated as equity at its full value.
单选题
The year-end financial statements for a firm using last in first out
(LIFO) acounting show an inventory level of $5000, cost of goods sold (COGS) of
$16000, and inventory purchases of $14500. If the LIFO reserve is $ 4000 at
year-end and was $1500 at the beginning of the year, what would the COGS have
been using FIFO accounting?
单选题
Debt covenants are restrictions imposed by bondholders on the issuer
in order to protect the bondholders' position. Which of the following is least
likely to be an area in which restrictions are imposed by debt covenants?
A. Issuance of new debt.
B. Sinking fund agreements.
C. Bond repurchases at a premium to par.
【正确答案】
C
【答案解析】Covenants protect bondholders from actions the firm may take that would decrease credit quality and reduce the value of the bondholders' claims to firm assets and earnings. Examples of covenants include restrictions on : 1 ) dividend payments and share repurchases; 2) mergers and acquisitions, and sale, leaseback, and disposal of certain assets ; 3) issuance of new debt ; 4) repayment patterns (e. g. sinking fund agreements and priority of claims).
单选题
During a period of rising prices a company may change from LIFO to
FIFO to:
A. takes advantage of tax deferrals and reduce overall taxes paid.
B. increase COGS and, hence, increase the overall cash flow position of the
firm.
C. increase reported inventory and, hence, improve various accounting
constructs such as working capital.
【正确答案】
C
【答案解析】FIFO involves lower cost of goods sold and higher inventory balances. Taxes are higher under FIFO and cash flows are lower (due to higher taxes paid ). Companies are able to manipulate profits under LIFO if they drop inventory below normal levels and dip into "cheap", older inventory. This causes low COGS under LIFO and high profits.
单选题
Cameron Inc. has $10 million of bonds outstanding that are convertible
into common shares. The current price per share is $ 44
and the stated conversion price is $ 49 per share. Cameron also has exchangeable
bonds issued for $ 20 million that are to be exchanged for shares of Adam Inc.
worth $ 20 million (therefore no gain or loss is realized on the exchange).
Based solely on the facts provided above, what effect should the convertible
bonds and exchangeable bonds have on an analyst' s assessment of Cameron' s
fundamental debt to total capital ratio? Convertible
Bonds Exchangeable Bonds ①A. Increase
Decrease ②B. No
effect Decrease
③C. No effect
No effect
A. ①
B. ②
C. ③
【正确答案】
B
【答案解析】As the conversion price is above the current share price by a reasonable margin (5/44 = 11% ) , it is unlikely that the bonds will be converted. Thus, there will be no effect on the debt to total capital ratio. The exchangeable bond transaction has no gain or loss so there is no effect on equity. But the liabilities will be reduced by $ 20 million and so this will decrease the debt to total capital ratio.
单选题
Which of the following statements about the financial statement
effects of issuing bonds is least likely correct?
A. Issuance of debt has no effect on cash flow from operations.
B. Periodic interest payments have no effect on cash flow from
financing.
C. Payment of debt at maturity decreases cash flow from operations by the
face value of the debt.
【正确答案】
C
【答案解析】Payment of debt at maturity has no effect on cash flow from operations but decreases cash flow from financing by the face value of the debt.
单选题
Compared to firms that expense costs, firms that capitalize expenses
will have:
A. lower income variablity.
B. lower cash flow from operations.
C. higher leverage ratios.
【正确答案】
A
【答案解析】Firms that capitalize expenses have less variability of net income because the capitalized expense becomes an asset that is depreciated over years instead of all at once which happens when costs are expensed. Capitalizing expenses will result in higher cash flows from operations because capitalizing an expense becomes an investing cash flow instead of an operating cash flow which occurs when expenditures are expensed. Firms that capitalize expenses have lower leverage ratios because assets and equity are increased so any leverage ratio that have assets and equity in the denominator will decrease.
单选题
Assume the present value discounted by 15% is $ 3500000 and it is used
the straight-line depreciated method. Find out the reported lease related
expense for the first year. The lease is a 10-year capital
lease with annual payments of $ 500000. There is a guaranteed
residual value of $ 500000 at the end of the lease.
A. $ 525000.
B. $ 830000.
C. $ 970000.
【正确答案】
B
【答案解析】Capital lease affects on the income statement:
Step1 : Calculate the depreciation charge: ( $ 3500000- $ 450000)/10 = $ 305000.
Step2 : Calculate the interest expense : $ 3500000×0.15 = $ 525000.
Total expense : $ 305000 + $ 525000 = $ 830000.
单选题
When analyzing a firm's reconciliation between its effective tax rate
and the statutory tax rate, which of the following is NOT a potential cause for
the difference between the effective rate and the statutory rate?
A. Deferred taxes provided on the reinvested earnings of unconsolidated
domestic affiliates.
B. Tax credits.
C. Use of accelerated depreciation for tax purposes and straight-line
depreciation for reporting purposes.
【正确答案】
C
【答案解析】Potential reasons for a difference between a firm' s statutory and effective tax rates include tax credits, differential tax treatment between capital gains and operating income, and deferred tax provisions on reinvested earnings of unconsolidated domestic affiliates. The difference in depreciation schedules for tax and reporting purposes affects the level of deferred taxes but not the tax rate at which they are calculated.
单选题
In a recent meeting of the Board of Directors of Singh Semiconductors,
the Board was discussing deferred taxes and the effective tax rate
reconciliation disclosures. The Board wanted to learn more about this topic
because low effective tax rates relative to the effective tax rates of
comparable companies are a potential red flag. At the meeting the following two
statements were made by Board members: Statement 1: When
analyzing a firm' s effective tax rate reconciliation disclosures, analysts
watch out for companies that report high income tax expense on their financial
statements compared to taxes payable because such companies are more likely to
be using aggressive accounting methods and have low-quality earnings.
Statement 2: High effective tax rates may result when a firm has
significant restructuring charges since restructuring charges do not generally
have tax cash flow effects in the year they are recorded, but can have
significant effects on future cash flows. Are Statements 1 and 2 as made
by Singh Semiconductor's Board members correct or
incorrect? Statement 1
Statement 2 ①A. Correct
Correct ②B.
Incorrect Correct
③C. Incorrect
Incorrect
A. ①
B. ②
C. ③
【正确答案】
A
【答案解析】The most useful measure of the effective tax rate for an analyst is:
taxe payable from the tax return
-----------------------------------------------
pretax income from the income statement
When taxes payable are significantly less than income tax expense, firms will report a low effective tax rate by this measure relative to comparable companies. One possible explanation is that the company is manipulating earnings and showing higher earnings on their income statements than on their tax returns. Aggressive revenue recognition, long estimates of asset lives, high estimates of asset salvage values, and aggressive capitalization of expenses could all contribute to this and indicate that earnings are of "poor quality".
Significant restructuring charges typically reduce pre tax income but not taxes payable, leading to relatively high effective tax rates using the above measure. Asset value write-downs, which are frequently a large component of restructuring charges, will typically not reduce cash taxes. Cash taxes in the future, however, may be reduced when "restructured" assets are disposed of and losses realized
单选题
Selected information from Kentucky Corp. ' s financial statements for
the year ended December 31 was as follows (in $ millions)
: Property, Plant & Equip.
10 Accumulated Depreciation
(4)
Deferred Tax Liability
0.6 The balances were all associated with a
single asset. The asset was permanently impaired and has a present value of
future cash flows of $ 4 million. After Kentucky writes down the asset,
Kentucky' s tax accounts will be affected as follows ( the tax rate is 40
percent) :
A. deferred tax liability will be eliminated and deferred tax assets will
increase $ 0.2 million.
B. deferred tax liability will be eliminated and tax assets will increase
$1.4 million.
C. income tax expense will decrease $ 0. 8 million.
【正确答案】
A
【答案解析】A permanently impaired asset must be written down to the present value of its future cash flows. The asset' s carrying value of ($10-$4=)$6million must be reduced by $ 2 million to $ 4 million. An impaired value write-down reduces net income for accounting purposes, but not for tax purposes until the asset is sold or disposed of. At a 40 percent tax rate, the eventual write-down for tax purposes of $ 2 million will be worth $ 0. 8 million in deferred tax assets. The $ 0.6 million deferred tax liability is eliminated and a deferred tax asset of $ 0.2 million is established.
单选题
The average age of plant and equipment is:
A. 1.33 years.
B. 3.62 years.
C. 7.87 years.
【正确答案】
C
【答案解析】The average age = accumulated depreciation/depreciation expense
7.87 = $1850000/$ 235000
单选题
A firm' s financial statements reflect the following information:
Beginning inventory
$ 3200000
Purchase during the year
$1700000
Ending inventory
$ 2100000
Sales
$ 4800000
Gross profit margin
What was the
firm' s gross profit margin?
A. 0.42.
B. 2.29.
C. 0.58.
【正确答案】
A
【答案解析】First we can determine the COGS by : COGS = beginning inventory + purchases - ending inventory = $ 2800000. Then, gross profit margin = ( sales - COGS)/sales =0.42.
单选题
Which of the following statements is most accurate, assuming stable
inventory quantities? In a period of:
A. falling prices, FIFO results in higher COGS and higher taxes.
B. rising prices, LIFO results in higher cash flows and higher net
income.
C. rising prices, FIFO results in higher taxes, lower cash flows and higher
working capital while LIFO results in higher COGS and lower inventory
balances.
【正确答案】
C
【答案解析】In a period of rising prices, LIFO results in higher COGS, lower taxes, lower net income, lower inventory balances, lower working capital, and higher cash flows due to less taxes paid out. In a falling price environment, it is the reverse. Also, FIFO inventory leads to opposite results for both rising and falling prices.
单选题
The Baker Company uses the LIFO inventory valuation method and reported its inventory at $ 200000 and its COGS at $ 500000. The company' s LIFO reserve increased from $ 5000 to $ 30000 during the year. What amounts would the company report if it were to use the FIFO method?
Ending Inventory COGS
①A. $170000 $ 525000
②B. $ 230000 $ 475000
③C. $170000 $475000
【正确答案】
B
【答案解析】Ending inventory under FIFO is equal to INVLIFO + LIFOreserve= 200000 + 30000 = 230000 COGS under FIFO equals COGSI-( LIFOE-LIFOB) = 500000-(30000-5000)=475000.
单选题
The following tax data is associated with a firm:
Income tax expense of $ 25000. Income taxes payable of $
30000. Pretax income of $ 80000. 40% tax
bracket. What is this firm' s alternative effective tax rate?
A. 31.25%.
B. 37.50%.
C. 40.00%.
【正确答案】
B
【答案解析】Pretax income, $ 80000
Taxes payable, 30000
Tax expense, 25000
Alternative ETR( taxes payable/pretax income) 30000/80000 = 0.375 or 37.5%