Question 1

Optical Networks Optical Networks is a leading semiconductor company with operations in 17 different countries. Information about the company's taxes appears below:
 Based on the information provided by Optical Networks how much cash did income taxes use during 2005?
A) $154.19 million
B) $54.17 million
C) $208.36 million
D) $284.84 million

Accepted Answer

A

Question 2

Which of the following is not a condition that requires capital lease accounting?
A) The lease term extends for more than 70% of the assets economic life.
B) The lease agreement transfers ownership of the leased asset to the lessee.
C) The lease agreement contains a bargain purchase option.
D) The present value of the minimum lease payments equals or exceeds 90% of the fair market value of the asset.

Accepted Answer

A

Question 3

Which of the following is not one of the GAAP classifications for derivatives?
A) Speculative investment
B) Fair value hedge
C) Asset-Liability hedge
D) Cash flow hedge

Accepted Answer

C

Question 4

The accumulated benefit obligation measures
A) the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels.
B) an estimated total benefit at retirement and then computes the level cost that will be sufficient, together with interest expected to accumulate at the assumed rate, to provide the total benefits at retirement.
C) the pension obligation on the basis of the plan formula applied to years of service to date and based on future salary levels.
D) the shortest possible period for funding to maximize the tax deduction.

Accepted Answer

The accumulated benefit obligation measures the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels.

Question 5

Optical Networks Optical Networks is a leading semiconductor company with operations in 17 different countries. Information about the company's taxes appears below:
 Using the information provided by Optical Networks determine the combined effective tax rate for 2005.
A) 33.52%
B) 35.00%
C) 42.25%
D) 45.49%

Accepted Answer

The answer of Optical Networks Optical Networks is a leading...

Question 6

Panthers, Corp. implemented a defined-benefit pension plan for its employees on January 2, 2004. The following data are provided for year 2004, as of December 31, 2004.  What amount should Panthers record as additional minimum pension liability at December 31, 2004?
A) $0
B) $5,000
C) $20,000
D) $45,000

Accepted Answer

The answer of Panthers, Corp. implemented a defined-benefit pension plan...

Question 7

The projected benefit obligation measures
A) the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels.
B) an estimated total benefit at retirement and then computes the level cost that will be sufficient, together with interest expected to accumulate at the assumed rate, to provide the total benefits at retirement.
C) the pension obligation on the basis of the plan formula applied to years of service to date and based on future salary levels.
D) the shortest possible period for funding to maximize the tax deduction.

Accepted Answer

The answer of The projected benefit obligation measures
A) the pension...

Question 8

Optical Networks Optical Networks is a leading semiconductor company with operations in 17 different countries. Information about the company's taxes appears below:
 Using the information provided by Optical Networks determine the federal effective tax rate for 2005.
A) 33.52%
B) 35.00%
C) 42.25%
D) 45.49%

Accepted Answer

The answer of Optical Networks Optical Networks is a leading...

Question 9

Which of the following accounts would not be considered a reserve account?
A) Allowance of Doubtful Accounts
B) Estimated Warranty Liability
C) Prepaid Expense
D) Accumulated Depreciation

Accepted Answer

Prepaid Expense is not a reserve account but rather a current asset account that represents advance payments made for goods or services that will be received in the future. Reserve accounts, on the other hand, are typically used to set aside funds for future contingencies or to account for estimated losses or expenses. Options A, B, and D are examples of reserve accounts - Allowance for Doubtful Accounts is a reserve set up to account for estimated bad debts, Estimated Warranty Liability is a reserve set up to account for the estimated costs of honoring warranties, and Accumulated Depreciation is a contra-asset account used to accumulate the total depreciation taken on an asset over its useful life.

Question 10

Derivatives are financial instruments that derive their value from changes in any of the following underlyings except
A) Stock prices
B) Percentage discount on accounts receivable
C) Interest rates
D) Commodity prices

Accepted Answer

Derivatives can be based on stock prices, interest rates, commodity prices, and many other underlyings, but they do not derive their value from changes in the percentage discount on accounts receivable.

Question 11

NOTE: The following multiple choice questions require present value information. On January 1, 2006, Price Corporation signed a five-year noncancelable lease for certain machinery. The terms of the lease called for:
 What accounting method should Price use to account for the equipment lease?
A) Operating Lease method
B) Capital Lease method
C) Equipment Lease method
D) Lessee Accounting method

Accepted Answer

The terms of the lease suggest that it is a capital lease. Therefore, Price should use the Capital Lease method to account for the equipment lease.

Question 12

Optical Networks Optical Networks is a leading semiconductor company with operations in 17 different countries. Information about the company's taxes appears below:
 Using the information provided by Optical Networks determine the foreign effective tax rate for 2005.
A) 33.52%
B) 35.00%
C) 42.25%
D) 45.49%

Accepted Answer

The answer of Optical Networks Optical Networks is a leading...

Question 13

The major difference between accounting for pensions and the accounting for other postretirement benefits is that firms
A) do not need to report an excess of the accumulated benefits obligations over assets in a postretirement benefits fund as a liability on the balance sheet.
B) do not need to disclose any estimates used in calculating projected benefits.
C) postretirement benefits are normally not material for most companies and do not need to be disclosed.
D) do not need to set aside funds for future postretirement benefits as they do for pension benefits.

Accepted Answer

The main difference between accounting for pensions and other postretirement benefits is that for pensions, any excess of the accumulated benefit obligation over the fair value of plan assets must be reported as a liability on the balance sheet, whereas for other postretirement benefits, this is not a requirement.

Question 14

Which of the following best describes the accounting treatment for derivative instruments not held for purposes of hedging?
A) Record as an asset or liability and recognize changes in fair value in other comprehensive income.
B) Do not record as an asset or liability, record income from the transaction at maturity and recognize in earnings.
C) Record as an asset or liability, recognize changes in fair value currently in earnings.
D) Record as an asset or liability if off-balance sheet risk is material.

Accepted Answer

Derivative instruments not held for purposes of hedging are considered speculative investments and are therefore recorded as assets or liabilities on the balance sheet. Changes in fair value are recognized currently in earnings, as they do not qualify for other comprehensive income treatment. Choice A would describe the accounting treatment for derivatives held for purposes of hedging. Choice B would not accurately reflect the use of the derivative instrument in generating income, as the income earned or loss incurred would be recognized currently rather than at maturity. Choice D is incorrect as off-balance sheet risk is not a determining factor in whether or not to record derivative instruments.

Question 15

Which of the following is not normally recognized as a liability on the balance sheet?
A) Warranties Payable.
B) Bonds payable.
C) Subscription Fees Received in Advance.
D) Employment Commitments.

Accepted Answer

Employment commitments are not typically recognized as a liability on the balance sheet. Instead, they may be disclosed in the footnotes to the financial statements. Warranties payable, bonds payable, and subscription fees received in advance are all common examples of liabilities that would be recognized on the balance sheet.

Question 16

Which of the following is not a distinguishing characteristic of a derivative instrument?
A) Derivative instruments have terms that require or permit net settlement.
B) Derivative instruments have a low initial net investment.
C) Derivative instruments are highly effective throughout their term.
D) Derivative instruments have one or more underlyings and notional amounts.

Accepted Answer

All of the other choices are distinguishing characteristics of derivative instruments. Derivatives allow net settlement, have low initial investment, and typically have underlyings and notional amounts. However, the effectiveness of a derivative instrument can vary, and therefore it is not a distinguishing characteristic.

Question 17

Presented below is pension information related to Paddle Corp. for the year 2004:  The amount of pension expense to be reported for 2004 is
A) $36,000
B) $48,000
C) $54,000
D) $40,000

Accepted Answer

The answer of Presented below is pension information related to...

Question 18

Which of the following is not one of the three criteria for recognition of a liability?
A) The obligation involves a probable future sacrifice of resources at a specified or determinable date.
B) The firm is required to make a cash payment for the goods or services.
C) The firm has little or no discretion to avoid the transfer.
D) The transaction or event giving rise to the liability has already occurred.

Accepted Answer

While a liability can involve a cash payment, it does not have to. A liability can also involve a non-cash payment or performance, such as the transfer of goods or services. The three criteria for recognition of a liability are: (1) there is a present obligation resulting from past events, (2) settlement is expected to result in an outflow of resources, and (3) the obligation can be reliably measured. B is not one of these criteria.

Question 19

To calculate a company's average tax rate an analyst would
A) Divide income tax payable by income before taxes
B) Divide income tax expense by income before taxes
C) Multiply the statutory income tax rate by income before tax
D) Average a firm's Federal, State, Local and Foreign tax rates.

Accepted Answer

To calculate the average tax rate, an analyst should divide the income tax expense by the income before taxes. This will give the percentage of tax paid on the company's income. Option A calculates the effective tax rate, which is different from the average tax rate. Option C multiplies the statutory tax rate by income before tax, which does not necessarily reflect the actual tax rate paid. Option D might be necessary in some cases but is not required to calculate the average tax rate.

Question 20

A minimum liability for pension expense is reported when
A) the projected benefit obligation exceeds the fair value of pension plan assets.
B) the pension expense reported for the period is greater than the funding amount for the same period.
C) the accumulated benefit obligation exceeds the fair value of pension plan assets.
D) vested benefits exceed the fair value of pension plan assets.

Accepted Answer

The answer of A minimum liability for pension expense is...

Quiz 8: Liability Recognition and Related Expenses

Optical Networks Optical Networks is a leading semiconductor company with operations in 17 different countries. Information about the company's taxes appears below: Based on the information provided by Optical Networks how much cash did income taxes use during 2005?

Which of the following is not a condition that requires capital lease accounting?

Which of the following is not one of the GAAP classifications for derivatives?

The accumulated benefit obligation measures

Optical Networks Optical Networks is a leading semiconductor company with operations in 17 different countries. Information about the company's taxes appears below: Using the information provided by Optical Networks determine the combined effective tax rate for 2005.

Panthers, Corp. implemented a defined-benefit pension plan for its employees on January 2, 2004. The following data are provided for year 2004, as of December 31, 2004. What amount should Panthers record as additional minimum pension liability at December 31, 2004?

The projected benefit obligation measures

Optical Networks Optical Networks is a leading semiconductor company with operations in 17 different countries. Information about the company's taxes appears below: Using the information provided by Optical Networks determine the federal effective tax rate for 2005.

Which of the following accounts would not be considered a reserve account?

Derivatives are financial instruments that derive their value from changes in any of the following underlyings except

NOTE: The following multiple choice questions require present value information. On January 1, 2006, Price Corporation signed a five-year noncancelable lease for certain machinery. The terms of the lease called for: What accounting method should Price use to account for the equipment lease?

Optical Networks Optical Networks is a leading semiconductor company with operations in 17 different countries. Information about the company's taxes appears below: Using the information provided by Optical Networks determine the foreign effective tax rate for 2005.

The major difference between accounting for pensions and the accounting for other postretirement benefits is that firms

Which of the following best describes the accounting treatment for derivative instruments not held for purposes of hedging?

Which of the following is not normally recognized as a liability on the balance sheet?

Which of the following is not a distinguishing characteristic of a derivative instrument?

Presented below is pension information related to Paddle Corp. for the year 2004: The amount of pension expense to be reported for 2004 is

Which of the following is not one of the three criteria for recognition of a liability?

To calculate a company's average tax rate an analyst would

A minimum liability for pension expense is reported when