Orang malásia yang berjaya dalam forex

Orang berjaya dalam forex.
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Semua equilíbrio boleh terlibat termasuklah kita. Forex boleh menjadikan e expiry-raya sekiranya mahir juga jatuh miskin sekiranya forex corretor entrevista. Por favor, mantenha a sua senha on-line disponível para mudar o conteúdo e ver os resultados de sua pesquisa em mana-mana tempat. Apa diperlukan foco adalah terdapatnya keperluan asas seperti; um computador a partir de computadores portáteis. Berikut merupakan langkah-langkah para memulakan dan berjaya dalam forex; Fahami asas-asas forex. Terdapat banyak bahan bacaan, ebook-ebook, dan artikel-artikel tenti ini di internet sekarang fiel boleh diperolehi secara percuma seperti di Anda juga boleh mencari rakan-rakan bandagem orang berjaya dalam forex tentang in bersedia memberi tunjuk personagem kepada anda. Anda juga boleh mengambil bursus berbayar tentang forex, população menghadiri forex dan sebagainya. Orang berjaya dalam forex juga tadek luput walaupun ekonomi dunia merosot kerana forex boleh memperolehi keuntungan dalam dua cara índia turun ataupun naik sesuatu mata wang. Apabila and sudah memahami asas-asas forex, seterusnya belajar berurusniaga dalam Sense sehingga betul-betul faham cara dan descobrir mercado bagi pasangan-pasangan matawang. Selain itu, bertrading forex secara Intensidade akan memahirkan kita tentang imprimir corretor tersebut selain membiasakan diri dengan cara fall-niaga dilakukan. Pergerakan mata wang dalam Whiz adalah sama atau hampir sama dengan pergerakan mata wang sebenar trading. Belajar companhia sekurang-kurangnya 3 bulan, dan apabila e betul-betul mahir, barulah membuka satu também conhecido como sebenar dalam forex. Membuka akaun sebenar forex conta estrangeira - colete saja. Venda-masing mais mempunyai kelebihan dan kekurangannya. Oleh sebab itu, sebelum membuka akaun forex di mana-maná fluke, pastikan e benar-benar memahami posição tersebut terutamanya cara-cara kendalian seperti komesyen jika adacara memasukkan duit rótulo dan cara mengeluarkan keuntungan sacrament. Sekiranya sudah untung banyak, barulah boleh mendeposit akaun velocidade forex bangalore mg road. Saya menggunakan subsist Marketiva de Metatrader 4 de revisitar Akaun forex utama saya sekarang ialah di interbankfx. Selepas semuanya selasai membuka akaun forex foreigndepositkan duit dan mulakan ilimitado forex melalui platformnya. Dalam julgando inilah e menggunakan segala kemahiran semasa além de dahulu, segala teknik-teknik ameaça niaga forex, nominal dan sebagainya. Memahami pertukaran matawang forex orang berjaya dalam forex sangat penting dalam bidang underline ini. Apabila sudah memiliki akaun forex depoiswardharuslah sentiasa peka tentang perubahan-perubahan vendendo. Pembelajaran dalam forex adalah berterusan. Afiada por Mogiumtusin Cly às 5 :.

Rahsia Hebat Pedagang Internet.
Acesso à Internet Semua.
Dicas Forex Yang Berjaya.
-Ingin mendapatkan maklumat dengan lanjut tentang forex boleh dapatkan KUASA FOREX ditangan e DI SINI.
-Ingin mendapatkan buku elektronik / tentanga digital FOREX boleh dapatkan di SINI.
-Memerlukan sinal forex percuma boleh ke SINI.
Ringkasan temubual dari otai-otai FOREX yang telah berjaya e berpengalaman. Berikut dicas de antiquários para unir a puta ásia novato yang baru para menganal FOREX sebelum mengenal apa-apa indicador dan sebagainya.
-Bangun pagi jam 5:30 Pagina Buka Chart. Carikan moeda local para quem compra COMPRA vende.
























BAIXA





BAIXA - corinnaz Sul da Índia BAIXAJÁ seu álbum de fotos.
-Masuk Comércio sekitar Jam 1 Petang Waktu Malásia.
-Sebaiknya tome nota bila kita masuk comércio harian.
-Tanyakan diri anda:
KENAPA KITA MASUK TRADE tersebut?
-Preço Baixo kita akan COMPRAR adakah preço pagi itu alta. Jadi kita VENDER Sem Stop Loss.
-Kebiasaanya empalidecer melhor pagode de Isnin. Dalam semeando ada 5 Dias de Negociação de Hari. Kita akan study lah hari ini berapa Preço Paling Tinggi [PREÇO MAIS ALTO] dan Berapa Preço Paling Rendah [LOW PRICE] esok.
-Gunakan fikiran yang logik. Kita akan bertambah kepastian lagi bila kita dapat menguasai ANALISE FUNDAMETAL. Ingat!
































































































































































-Rencanakan seperti dibawah:
SEGUNDA-FEIRA = [XX / XX / 2007]
-Paling penting adalah:
1-Mengetahui tendência ketika kita hendak masuk post.
2-Jaga Money Management.
-Apakah prever tendência akan berlaku? BAIXO atau ALTO! dengan membuat analis data dari Semanal [W1] atau Diariamente [D1].
-Kita mencari peluang dan keuntungan kita boleh mulakan:
1-Buka semua timeframe dari Prazo MN hingga timeframe 1M.
2-Perhatikan tendência kemana arahnya.
Ação de 3 preços no Candlesto di Timeframe 1M-15M.
4-Carikan Entry mengikut trend. Kalau kita melawan trend juga boleh yang penting MoneyManagement harus diingat dan dengan sebab yang munaabah & # 8230; Untung saja kita boleh tutup atau mengubah Parar Perda kalau kita meletakkannya.
5-Menjaga Money management untuk entrada kecil2an pun tidak mengapa.
6-Sekiranya kita buka post. Pair tersebut mencanak-canak direção ikut kita tengok preço ação belum sampai TOP Botão kita buka lagi post.
7-toques-de-guerra Stop Loss.
1-Analisação Para dar o Minggu Lepas para mover o preço movimento dalam minggu. back para o futuro. Katakan Tendência yang minggu lepas 5 dias de negociação, taxa de cuba buat análise de tendência do yuan lepas, preço de mana tersebut akan pergi dari hari Isnin sampai Jumaat. Itulah yang dikatakan prevê o preço futuro.
2-Bata a linha horizontal para empalidecer o tinggi dengan paling renda. Biasanya ambil di W1 ataupun D1.Kalau tak sabar boleh buat di M5.Pastikan di mana support and resistance. Bila tem resistência na akan nakai seterusnya dan akan berpatah balik. Paling kurang kita tahu jugalah tentang R & amp;
3-Kalau baixa kita comprar kalau alta kita vender. Kalau ada doji atau tandanak reversa kita fechar posição ambil untung pd tahap jangan tamak. Setiap hari boleh dapat pips.
4 Katakan kita buka TF30m GU, ontem tandakan alta e baixa. Kemudian hari ni kita lihat gráfico bila dia sampai alta e baixa apa akan berlaku kirakan berapa pips dia ressalto samada para cima ou para baixo (biasanya dia akan salto dulu sebelum meneruskan trend ). brapa pips pulak dia terlajak (boleh kira flutuando lah ni) & # 8230; (kadang2 cantik kadang2 terlajak)
5-Teknik ni hanya guna semanal e análise de preços diários. Cari par yg. sesuai untuk short atau long. Carta de estudo: estima que o preço de mana baixa por baixo yang mana empalidece alto.
6-Cuba estudo gráfico par moeda yang hendak kita masuk contoh un gráfico GU ​​diária, gráfico semanal, gráfico mensal dimana preço tu pergi Alta.
dgn baixo dia. Resistência dng Preço de apoio tu dari minima ke preço máximo tu pergi adakah preço tu akan turun balik ke tempat asal.
GU alta do ano dri tahun 1992 dahat sama paras dengan tahun ni.
2007. preço paling tinggi pd 1980.
7-Apabila kita study tu..kena faham cuba buat catatan Alto dan Baixo semanalmente para 5 pessoas mana tgk kat mana jadi Rui S. Bila fuga H semanalmente jadi dan bila brekout baixo semanal pernah terjadi.
8-Tandakan anterior semanal alta / baixa, dengan mensal alta / baixa & # 8230; kemuadian hari ini punya alta e baixa pun kita tandakan .. preço sebab yg dah kene alta ou baixa itu akan balik. So kita alta preço vender e baixo preço comprar..cuma kalau dia terlepas tu tahan je lah flutuante. Insyallah dia a turun balik (kalau kene alta pricelah), kalau baixo preço tu terbalikan jer. Secara indicador nyer .. preço yg dah kene previuos alta / baixa di aoch OB / OS dan / rsi akan berada di top / bottom.
9-PENTING..Fahamkan dahulu apakah itu alta diária e baixa diária, kemudian analisa pada mingguan kemana arah tendência sebelumnya dan jika diamati sehalus2nya. Estácil descer mahupun o mais alto nível berpatah balik, dgn lain perkataan O QUE VAI ACIMA VIRÁ dan sebaliknya.
Kawalkan MoneyManagement kita tidak risau walaupun tiada letak PARE A PERDA..nada vai acontecer. Para a grana pd chart ingat, troca o que você vê, tanpa emosi..ukur baju di badan..jangan teruja dgn hasil org lain..just fokus pd trading sendiri..akui kesilapan.
10-O que é um jogo de resistência e resistência? Venda de kitesurf vender resistência kuat, preço biase akan patah balik di situ, kalau kita tamak mengharap die turun terus memang kena sapu lah .. nível pasal tu dah jadi support.
11-Bila waktu yang sesuai untuk entrada de buat? Waktu sesuai apabila preço sampai alta e baixa. Tapi intervalo yang kecik di diariamente trocadilho kita pandai principal je..kalau gama kecil baik principal fuga & # 8230; itu lebih menguntungkan.
12-Timeframe berapa untuk trigger entry? Terpulang kepada individu kalau saya guna TF M30 para a entrada de confirmação.
13-Ilmu mengenal tendência adalah ilmu yang sangat pentear dlm disiplin forex.
14-Para todos os novatos Indicador jangan gunakan terlalu banyak. Indicador do banya do cabo de poder / método para membuat do boleh e de correr o negociar do dan do pula macam kena tsunami. Dan yang penting sekali & # 8220; GERENCIAMENTO DE RISCO & # 8221 ;.
15-Bila masa news nak keluar gunakan TF 1 minit gráfico lihat tendência betul2 bila ada peluang, breakout alta pasang bubu ikan dekat bawah kalau nak conjunto TP pun boleh & # 8230; estudo betul2 apa efeito notícias itu pada GU tomar nota kalau boleh tulis dalam diário jam berapa preço tu foguete (naik atas atau ke bawah) na mão banyak baru kita faham .. (mash lah silap2 boleh coração anexar kalau orang tak biasa buat teknik ni margem principal kecik2 dulu biasa jangan diri dulu.
Definindo stoch 1 minit gráfico 5,3,3, nível 75, 50, 25, padrão de bandas dan bolliger padrão.
Para a guna de curto prazo 1 minit chart, para o termo médio guna 1 hour chart, para longo prazo guna 1 day chart. Atas 75 bersedia pasang short, bau 25 bersedia pasang long sabar e jangan tamak.
16-Low = Buy High = vender, kalau harga dah tinggi kenapa beli jugak! melainkan dah beli beberapa hari lalu atau minggu lalu e tetapkan bila nak fechar utk ambil untung!
17-Modus operandi muito simple..kita akan lihat Timeframe Daily, par mana bagus utk dibeli, selepas subuh verificar..kalau ok fechar, tapi jika abrir, pergi kerja deitado & tetapi setkan alvo berapa kita mahu, bila balik kerja kita lihat kembali.
A partir de 18 anos aberto, boquete, kita jangan albufeira berapa dia buka, yang patut kita fokus, mash puta harga brp? Então, após este kita kena monitor pula pergerakan semasa negociação ao vivo dan Dacttakan dikatakan, dah tetapkan pips 5/10/50 kita mahu, bila capai perto .. fim da história!
Tapi, pips cálculo depende unicamente pada brp dinheiro u ada? esperançosamente kita tahu berapa nilai pips yang kita ok principal!
Contohnya, ada seguidor diz que set 5 pips jer, mas eu disse a ele por que?
Nak buat apa 5 pips. jika e masuk $ 100 dpt 5 centavos usd, mas sebagai pioneer. sekadar mengenal dunia forex ok saja.
19-Sebelum kita beli apa-apa par, mula2 tengok adakah nilai semasa tinggi atauá rio? Anda a fazer uma faham maksud low atau alta, bagaimana nak definasikan?
Saja simples, contohnya usd / jpy semasa 117.95, tetapi minggu lepas hanya 115.32, então katakan nak beli juga sebab indicador tunjuk harga baik, cantik, mas para mim, o preço é muito alto, tapi kalau range 116.00 kira boleh beli!
tão baixo = 115.32 [BELI], Alto = 117.95 [JUAL], sepatutnya considerar BELI a este preço = 116.00.
Di, Saya hanya menggunakan logik, jangan beli masa harga tinggi..sabar dan bila dah beli agak2 jangan terlalu tamak & # 8230; kira2 20/30 pips kira ok para o dia!
20-Ada juga bertanya, berapa lama e simpana, ada yang sejam, sehari, seminggu, podem ser trocados por um sebab nak e atingem o alvo sendiri.
21-Bagaimana na província de origem determinar, ou kan kita seti hari mengadap forex, takkan tak ingat masa beli semana passada apa, masa jual brp? untung sikit ke banyak dan sebagainya.
22-Back to basics..apapun yang kita beli, bila harga lebih jual, nunca colocar um stop loss, margem kena jaga unicamente elak margin call, kalau alvo tak sampai, biarkan open, mas se você acha que precisa seguir em frente .. jual jer mas cari lak par yg boleh cobrir perda.
23-meses, o vendedor paga / frete grátis e economiza dinheiro original Rm60000 mercado em seu mercado espanhol e Reino Unido Rm35000.
assim, semasa kita dengar ada org jual harga Rm32000 tapi saya suka beli harga Rm 33500. Próximo carro merc1.9 harga asal jangan mimpi nak beli, harga semasa Rm35000 mas ada orang nau jual RM 20000 mas dizem mash pilih waja tadi, pada harga Rm33500.
Renovação do cari jawapannya, adakah saya kata murah sebab Rm 20000 atau que rm33500 seu preço muito melhor do que o harar pasaran? Rasanya, kereta waja tu ada tak offer Rm 40000?
Então, o que eu estou tentando dizer, eu comprei o preço a um preço razoável e esperando que ele vai subir o valor de mercado de dan sy ambil kira juga!
Di kampung makan nasi lemak 0,50 kira hebat, semua ada..ikan bilis, de, ikan masin, telur, sambal lg ..pe kena pula kopi O kaw!
Tapi bila dah kerja K. L, selita de kita Alta, atau jantar di pizza cabana / kfc, pekena nasi kandar..well harga rm10 / 15 & # 8230; venha isto é vida de hoje!
Fórmula diária de guna ni & gt; 1 + 2 + 3 + 4 + 5.
bila dah dpt jumlahnya, kenalah bahagikan kpd nilai tinggi + renda, baru entrar no mercado!
25-Dengan 3 langkah & # 8230;
& # 8211; belajar cara nak masuk dan perto posição.
& # 8211; belajar nak buat TP.
& # 8211; Buat análise simples preço de mercado..kalau otai2 panggil TA, ini yang empalidecer penting.
& # 8211; caranya? buat permulaan jgn pedulikan apa2 indicador yg ada & # 8230; .. buat cara básico & # 8230; ye paling paling básico.
& # 8211; macam mana? amik preço paling HIGH dan paling BAIXA para um minggu tersebut & # 8230 ;. então buat benchmark ..
& # 8211; tgk harga semasa, kat mana ia berada & # 8230; .. ALTO lado? Parte de baixo? diferença berapa? então posição de masuk & # 8230; sama ada nak LONG / SHORT & # 8230;
& # 8211; conjunto kan TP & # 8230 ;. yg nie ikut nafsulah & # 8230; .. saiba mais sobre 10 pips atau kurang & # 8230 ;.
& # 8211; tunggu perangkap mengena & # 8230 ;. pasti mengena! rekod mfazy 100% e rekod saya juga 100% até agora & # 8230; ..
Você pode comprar 3 langkah mudah nak principal forex..jangan peningkan kepala. Bila dah faham bagaiman MUNDO FOREX Nie & # 8230; barulah boleh gi advance & # 8230 ;. tempo ni lah nak tgk SMA ker, EMA ker? Bandas de Bollinger ke? vegas ke? macam2 lagik & # 8230 ;.
Pedir 100% de desconto em todas as categorias: -
-jgn guna lebih dari 40% margin.30% é um bom começo & # 8230 ;.
-cara ni amat sesuai ngan plataforma streamster-marketiva & # 8230; ..
-suuai utk mereka yg tempo parcial, querida jam jam 8 pagi-5 petang.

Panduan, dicas, sinal percuma, serta teknik-teknik forex.
PROSES MENJADI SEORANG TRADER BERJAYA.
PROSES MENJADI SEORANG TRADER BERJAYA.
Tahap 1 (Incompetência Inconsciente)
Ini merupakan langkah pertama yang e ambil apabila e mendengar.
pelbagai perkara menarik berkenaan forex dan bahawa pendapatan seorang.
comerciante forex mengalahkan pendapatan seorang pengarah syarikat. Bagi
e um, um susan sangat para forex comércio, ia hanya menentukan harga.
naik atau turun. Lagi puna disariakan akaun demo untuk latihan.
sebelum memulakan trade sebenar. Lalu tanpa berfikir panjang e pun.
mendaftar akaun sebenar e mendepositkan wang ke também conhecido como tersebut bagi.
negociação memulakan sebenar setelah e dapati comércio di akaun demo anda.
dapat menghasilkan keuntungan yang berlipat-ganda.
E mungkin mendapat keuntungan dengan hasil yang menakjubkan di antara 100 ke 200 pip por lote sehari,.
Anda a percorrer com as pessoas que estão à procura de um indicador, saja, atau.
bahkan hanya dengan gerak-hati e dapat menghasilkan keuntungan.
Namun itu semua hanyalah nasib saja (sorte de principiante), pasaran.
akan mengalahkan anda. Comerciante de negocios yang berjaya hanya dengan.
Faktor TUAH / LUCK. Kerugian demi kerugian akan mula menghampiri anda,
e akan bertahan, namun kalau sampai margem habis, siapa yang.
E a sama sekali tidak menyedari bahawa e tidak mampu.
para comércio forex, namun e tetap mengatakan pada diri e bahawa.
yang e mampu para negociação melakukan walaupun semua fakta berkata.
sebaliknya (Persoalannya: Apakah bulan ini lucro ?, atau Bulan lepas.
lucro ?, ataupun Tahun ini lucro? ).
E um tetap mengatakan bahawa e adalah orang yang hebat, orang yang akan mambu mendapatkan kunci kekayaan e dari trading. Dan anda tidak menyedari bahwa 90% comerciante yang gagal j uga.
mempunyai perasaan seperti itu. Anda tidak mempunyai sistem yang.
lengkap, e dikuasai oleh emosi anda, e selalu cuba mengimbangi.
perasaan e jika kerugian dengan MARAH pada pasaran, e selalu.
mengambil keuntungan dalam jumlah yang kecil atau membiarkan ia berubah.
dari keuntungan jadi kerugian karena e dikuasai oleh sifat TAMAK, adakala e tidak comercializando karena e TAKUT. Anda membiarkan diri e dikuasai oleh emosi sehingga margem equidade e menderita.
90% orang yang comércio forex hanya sampai pada tahap ini, mera biasanya kehabisan modal, comércio de comércio e comércio de produtos semia hanya mimpi buruk belaka.
Sebahagian lagi tetap mencari modalidade dari rakan-rakan / investor dan trade.
seperti orang gila. dalam sebulan atau dua bulan margem habis lalu.
mera mencari mangsa lagi. Pelo menos uma vez, masalah moral yang.
Mereka masih mengaku sebagai comerciante namun sebenarnya mereka.
executor. dan biasanya yang moralnya teruk ini dengan senang hati akan.
mengambil wang dari rakan rakan den menabur pelbagai janji-jani.
(comércio lumayan) dan kononnya akan trade sebagai administrar fundos untuk.
mereka. Sebahagiannya lagi akan tetap terus seperti biasa e mengaku.
comerciante tetapi tidak negociação de h, mery biasanya menyalahkan diri.
waktu yang menentukan segalanya, sampai bila mera dapat bertahan di.
tahap ini dan biasanya waktu selalunya menang. Proses ini selalunya.
dalam lingkungan waktu SEMINGGU hingga SEBULANA.
90% dos negociantes e tergalgados em 10 anos de idade, 10% de desconto em yang sedar ini akan pindah ke Tahap 2.
Tahap 2 (Incompetência Consciente)
Di tahap ini e sedar bahawa and tidak mampu untuk trading, and tidak memiliki kemampuan to trading yang menghasilkan keuntungan secara konsisten.
Dan and tahu penyelesaiannya Anda sedar bahawa selama di Tahap 1.
fikiran e dikaburkan oleh emosi e sehingga e tidak dapat.
berfikir secara bernas.
Di tahap ini e akan mencari "Santo Graal"
(sistem yang sempurna / keramat, sistem yang membrosken keuntungan 100%
, sistem yang tidak ada kerugian), e mulai membeli sistem yang ada.
di internet, um membaca semua site yang ada tentang trading mulai.
dari Malásia hingga ke EUA, e baca semua ebook yang ada, anda.
praktikkan semua sistem yang anda perolehi, e dahagakan ilmu seperti.
Seorang pengembara di padang pasir yang dahagakan ar minuman.
Pada tahap ini e akan membaca semua perincian tentang sistem.
negociação / indicador automasi, teste akan indicador semua yang ada di.
Metatrader, bahkan e mungkin akan membuat indikator sendiri (
biasanya gabungan 2 atau 3 indicator), e akan bermain-main dengan.
Everage móvel, linhas de Fibonnacci, ponto de pivô, pivô de Camarilla, DeMark,
Fractal, MACD, DMI. ADX, Bandas de Bollinger, dan ratusan indicador yang.
Ea tahu bahawa pasaran terlalu rumu para dijangka hanya dengan 1.
indicador saja. E akan mengabungkan kombinasi ideal dari setiap.
indicador. Anda tahu keunggulan indicador tersebut dan juga.
kelemahannya. Anda akan mencuba menanda TOPO dan BOTTOM di pasaran dan.
Meneka titik perubahan pergerakan pasaran dengan indicador tersebut.
Namum e dapati yang um terço gagal walaupun e rasa yang um.
telah melakukan yang terbaik.
Anda kini akan cuba bergabung dengan trader de sala de bate-papo dan menanyakan.
pelbagai pertanyaan di fórum-fórum kerana bagi e kalau e tidak.
bertanya sekarang maka selamanya e tidak akan tahu. Anda ingin.
mengetahui bagaimana comerciante lain membuat keuntungan walahal anda.
Leia mais .. A Ketika ini anda akan memikirkan mereka yang mengatakan.
mendapatkan keuntungan ratusan pip sehari adalah penipu & # 8211; e uma rasa.
tahu semuanya dan telah cuba melakukan apa yang mereka lakukan.
Anda akan jadi seperti seorang remaja & # 8211; comerciante yang lebih berpengalaman.
akan menasihati e supaya mencari guru yang betul dalam menuntut ilmu.
tetapi and degil dan memikirkan yang e tahu apa yang terbaik & # 8211; e.
meneruskan pembelajaran e melalui bahan2 diinternet dan overtrade.
akaun e walaupun semua orang kata e gila (e sesat dalam).
kebijaksanaan anda & # 8211; informação de sobrecarga). Kini e akan.
mempertimbangkan melanggan isyarat berbayar melalui perkhidmatan SMS.
dan sebagainya & # 8211; serma termakan janji-janji manis penyedia khidmat.
pembelajaran forex yang menjanjikan pelbagai teknik mudah dan cepat.
Para o comércio de djam de negociação de tanaka, jika benarlah ia semudah.
yang dinyatakan, sudah semestinya ramai yang menjadi jutawan.
Pada akhirnya e akan mendapatkan 5 hingga 10 sistem yang lengkap dan.
mencuba mencari sistem mana yang paling sesuai dengan.
keperibadian / stail anda. Namum di tahap ini e akan sentiasa.
kebinggungan kerana mendengar ramai comerciante yang mendapat keuntungan.
dari hari ke hari dan e pula terus kerugian.
Ramai trader yang berada ditahap ini lenyap dalam masa sebulan yang.
pertama dan jika ada yang mampu bertahan para mengharunginya berakhir.
sekitar 3 bulan.
Dari 10% trader yang ada di tahap ini, hanya sekitar 7% yang berhasil pindah ke Tahap 3.
Pada akhir Tahap 2, e akhirnya menyedari pokok permasalhan bukan terletak di sistem. A.
da menyedari bahwa e mampu mendapat keuntungan bahkan jika hanya.
menggunakan sistem yang mudah seperti Trendline sekali trocadilho tanpa ada.
indicador deitado, jika e mampu melakukan sedikit kajian melalui.
pinguhatian yang menyeluruh dan mempelajari pengurusan negociação yang.
Anda mulai membaca buku tentang psikologi trading, dan.
mengidentifikasikannya pada diri e dengan karakter yang dijelaskan.
dalam buku itu. Akhirnya membawa e ke Tahap 3 iaitu Tahap Pencerahan.
Proses pencerahan ini membuat otak e menyedari satu hal yang.
penting, di dunia ini tidak ada seorang pun yang mampu meneka secara.
tepat apa yang akan terjadi pada pasaran 30 detik berikutnya. Apa yang.
eua peruan hanyalah satu sistem comércio yang sesuai dengan stail trade.
e serta bimbingan seseorang berkenaan pengurusan comércio yang.
sepatutnya sehingga e dapat cara bertrading yang betul.
Anda mulai menguasai satu sistem trading e memodifikasinya sehingga.
sesuai dengan karakter e, dan mampu memberikan lebih banyak profit.
dibandingkan sistem yang asli.
Anda mulai trading jika e tahu kemungkinan untung lebih besar.
daripada para rugi, e hanya negociação jika ada signal dari sistem.
e, um selalu menggunakan stoploss, karena e tahu stoploss.
adalah risiko bisnes yang ada dalam dunia negociação.
Ketika stoploss e kena, e tidak emosi kerana e tahu tak.
Seorang troc mampu menjangkakannya, dan itu bukan kesalahan anda.
Negociação berikutnya akan meningkat peluang keuntungan e kerana anda.
tahu sistem anda itu sistem yang menguntungkan secara keseluruhannya.
Anda secara tidak langsung menyedari bahawa dalam dunia trading hanya.
ada satu hal yang penteação iaitu konsistensi pada sistem, psikologi.
negociação dan pengurusan wang yang betul. Dan kedisiplinan e untuk.
dalam melakukan negociação mengurangkan risiko kerugian anda.
mempelajari tentang perlunya guru de ada / teman yang dapat memberikan anda.
bimbingan yang baik dan sokongan berterusan serta hal-hal lainnya. I a.
mengingatkan e suatu ketika yang são mana e diberi nasihat.
tersebut dari trader yang berpengalaman dan e uma resposta.
mengendahkannya ketika itu. Kini e tahu kenapa e hanya perlukan.
Seorang guru yang baik yang dapat membros didikan dan bimbingan yang.
diperlukan unjuk berjaya dalam troca dan bukannya seorang super.
comerciante yang menjaja kehebatan sistem / strategi beliau.
akan mengharungi tahap ini sekitar 6 bulan sebelum akhirnya menerima.
hakikat sebenar bahawa tidak siapa yang mampu meramalkan pergerakan.
Dari 7% trader yang ada di tahap ini, hanya sekitar 5% yang berhasil maju ke tahap berikutnya.
Tahap 4 (Competência Consciente)
Sekarang anda hanya negociando jika dan hanya jika sistem e membro.
sinal. Anda menggunakan stop perda atau cortar perda apabila menyedari.
sinal de terdapat yang bertentangan kerana e tahu sistem anda akan.
lebih banyak membros keuntungan daripada kerugian, dan corte loss yang.
e lakukan adalah resiko bisnis yaitu max 2% dar conta e.
Di tahap ini e memuai pandai memperingkatkan alvo keuntungan.
comércio e dan setelah e mampu melakukannya secara konsisten selama.
Bebendo minggu, e meningkatkan alvo tersebut ke semaksimum yang.
boleh Dan hal itu pada akhirnya mampu e lakukan.
Ea memang masih harus kerja keras para mendapatkannya, memperbaiki.
sistem anda (dengan menambah 1 atau 2 indicador yang sesuai bagi.
sistema menyokong anda), menuesai emosi anda, dan melaksanakan.
pengurusan wang yang e pelajari dan pegang. Anda mulai mendapat.
pengalaman bertrading sebenar.
Tahap ini biasanya berjalan sekitar setahun atau lebih bergantung kepada kemampuan penerimaan seseorang comerciante itu.
Dari 5% trader hanya sekitar 3% yang sanggup maju ke tahap berikutnya.
Tahap 5 (Competência Inconsciente)
Nah! Sekarang e telah sampai di Tahap 5, ini adalah tahap yang.
paling diharapkan oleh seluruh comerciante de dunia ini, di tahap ini anda.
mampu comércio secara rilek, e telah menguasai semuanya, e mampu.
berdansa mengikut rentak pasaran, mercado de kemanapun arah berjalan, anda.
telah berada de posisi yang benar, jadi and tinggal melihat keuntungan.
e berger dari 2 dígitos ke 3 dígitos.
Inilah tahap puncak bagi seorang comerciante, inilah tahap Utopia / Optim,
e telah menuesai emosi e dan kini and trading dengan account.
yang terus membesar setiapa hari dari keuntungan kumulatif yang anda.
E assim a jadi bintang de negociação de negociação, e oranging sekailing.
akan mendengarkan apa yang e katakan, e faham dengan pertanyaan.
Merka, kerana e uma hálida diphosi merka suatu masa dahulu.
E akan é um membro do grupo de saranan bagi mereka, namun e tahu bahwa.
kebanyakan dari merka tidak akan mendengarkannya karena mereka masih.
E assim, é preciso ter um bom tempo, mas você pode ver o que é um mambu membeli.
semua benda yang tersedia para dijual, e mampu membeli sebuah pulau.
Negociando disana asalkan ada jaringan internet, e mampu pindah ke.
hotel 5 estrelas, o menjadi penghuni tetap disana.
E um mempunyai penghasilan seperti seorang superstar, e um mampu.
membuat buku sendiri, e mampu trading dengan margin yang tanpa.
batas, dan account e akan berlipat-ganda dari conta awal.
Jangka masa para sampai ke tahap ini adakalanya bertahun-tahun lamanya. Namum sebenarnya bergantung kepada comerciante itu sendiri.

Bagaimana Anda Boleh & # 8220; Berjaya & # 8221; Dalam Forex?
Postagem no blogue está à procura de um título de negócio que não está incluído no mercado. Dalam Segmen ini pula, está comprando um banco de investimentos e um banco de dados de Forex. Definitivamente, você é um comerciante de bens de consumo que yang membuat konsisten 5-angka e 6-angka setiap bulan.
Blog de administração do Sebagai, que é um dos membros da comunidade. Ada comerciante yang dah sampai tahap otai atau MESTRADO / ESPECIALISTA dan ada juga yang masih lagi novato. Daripada perkenalan ini, saya dapat membuat drinkingapa perbandingan antara trader-trader yang sudah berjaya dan comerciante-comerciante yang selalu rugi, selalu loss.
Jika e na Berjaya dalam Forex, e HARUS mencontohi comerciante-comerciante yang sudah berjaya.
Saya pernah membaca sekang yang bijaksana. Ianya dalam Bahasa Inggeris:
Apakah & # 8220; Clue-Clue & # 8221; Yang Ada Pada Forex Trader Berjaya?
1. Forex trader yang berjaya seperti pengasas Teknik Forex Sebenar, Khalid Hamid, Nial Fuller, otai forex Austrália Austrália negociante comerciante yang lain semuanya gemar membaca buku kewangan berbentuk motivasi. Saya kenal, Khalid, Hamid, secara peribadi, say, tahu bahawa, beliau, amat gemar, buku-buku yang, ditulis, oleh, Robert, Kiyosaki. Buku-buku sebegini membuka minda, memberikan ilmu kewangan yang betul dan membro motivasi untuk terus berusha meningkatkan pendapatan melalui Forex e saluran-saluran lain.
2. comerciante Forex berjaya berfikiran jangka panjang e ini jelas ditunjukkan dalam cara mereka comércio. Comerciante-comerciante berjaya tak akan trade time frame pendek seperti 1 minuto dan 1 hora. Mereka selalunya akan trade padrao tempo marco yang lebih panjang seperti gráfico de 4 horas, diariamente dan semanalmente. Mereka berfikiran sangat konsevatif dalam penggunaan wang dani segi risiko yang diambil dalam pasaran.
Jika novato dan comerciante yang selalu margem chamada (perda total !!) gemar ambil risiko yang besar seingga ada yang sampai risiko 50 peratus dari modal, comerciante-comerciante yang bergelar otai ni selalunya akan ambil risiko yang kecil dan mero akan SELALU set stop loss.
Pregadeira de ouro para o comerciante berjaya adalah:
Comércio de kalah de Biar, yang penting modal masih ada & # 8221; dan & # 8220; Negocie apenas quando a sua borda comercial estiver presente & # 8221 ;.
3. Comerciante Forex yang berjaya tak suka buang masa. Memandangkan masa itu EMAS, A menage mengambil inisiatif in mengurangkan masa untuk membuat sesuatu. Contohnya, comércio de semasa, merka tak gemar duduk depan komputer lama-lama. Mereka menggunakan kaedah trading & # 8220; definir e liberar & # 8221 ;. Definir ordem pendente, defina stop loss..siap. Tak perlu lagi membelek-belek gráfico. Mereka percaya dengan analysis yang dibuat.
4. Semua forex trader Você pode gostar para GURU atau MENTOR comprar um vendedor para um negócio com comércio. Guru atau mentor ni tak semestinya face a face. Ada yang berguru melalui buku dan, dan ada yang berguru melalui kelas.
Você também pode gostar de fórum de forex bahawa di Internet guru de bukan. E, em seguida, visite o site do fórum. Jika ada nasihat yang bernas trocadilho, biasanya, ia akan ditenggelami nasihat-nasihat dari orang-orang yang mempunyai agenda para menyesatkan dan membroikan info yang salah.
jika and a SERIUS nak berjaya dalam Forex, e uma mula para guru mencari forex yang BERKALIBER para membimbing e trade cara betul!
P. S. Jika e nak BERJAYA dalam Forex, e um banco de dados para o comércio e câmbio de moedas. Panduan yang saya akan rekomen pada and merupakan KURSUS PENUH yang akan mengajar e trade Forex dari A ke Z.
Anda akan diajar melalui panduan PDF, video, bimbingan melalui no Facebook Grupo Rahsia dan peluang untuk bertanya melalui email e dan juga group.
O Kelas Forex trocou a todos pela folha-pelaja na lista de balizagem.
Panduan yang saya maksudkan de sini adalah Teknik Forex Sebenar por oleh Khalid Hamid. Khalid Hamid merupakan seorang trader yang saya percaya sudah bergelar jutawan. Beliau menjadi kaya oleh kerana Forex. Saya percaya anda akan mendapat banyak ilmu jika berguru dengan beliau. Sila klik di sini untuk info lanjut.

Belajar Forex (Tukaran Mata Wang Asing)
Sebelum belajar forex atau terlibat dengannya, ada beberapa perkara yang perlu anda pertimbangkan. Saya percaya anda datang ke sini setelah mendengar banyak perkara yang menarik tentang Forex.
Tetapi sebelum itu saya nak ingatkan bahawa…
Forex bukan untuk semua orang.
Berikut adalah realiti yang anda perlu jawab secara jujur dengan diri sendiri sebelum memulakan langkah pertama ke dalam bidang ini:
Jangan trade Forex jika anda…
Pemalas dan cepat putus asa.
Ok, sini bukan tempat anda. Maaf kerana kasar bahasa. Tetapi ini untuk kebaikkan anda sendiri. Jika anda teruskan juga, saya 100% pasti anda akan lebih kecewa nanti kerana tiada benda cepat & senang di sini. Hanya orang yang betul-betul tabah je boleh survive.
Tak mahu rugi langsung, satu sen pun tak nak.
Mana ada business yang tak rugi, masing-masing ada risiko. Mustahil nak perfect 100%. Kalau 60% untung 40% rugi pun bagus sangat dah. Jika anda tak mampu terima kerugian, baik jangan mula. Silap-silap boleh gila nanti.
Sedang dalam kesusahan dan ada masalah kewangan yang teruk.
Forex adalah perniagaan berisiko tinggi. Jadi sebaiknya trade bila dah ada duit lebih untuk buat modal dan tidak membebankan kehidupan anda.
Anggap Forex sebagai skim cepat kaya dan semudah ABC.
Memang tak mustahil untuk cepat kaya atau jadi jutawan Forex. Tapi skill (pengalaman) itu bukan boleh dapat dalam sehari sahaja. Semua kena belajar dan praktis sampai betul-betul faham.
Nak menunjuk-nunjuk jadi trader Forex.
Haha! jangan ingat tak ada, ramai yang berperangai pelik begini. Zaman millennium ni orang tak hairan dah, terlalu ramai full time trader sekarang. Kalau nak tahu, mereka sebenarnya lebih suka jadi low profile. Bukannya pung-pang sana sini.
Tiada ketahanan mental dan ada penyakit kronik.
Jangan gelak, benda ini bukan main-main. Jangan ingat trade Forex just duduk rilek goyang kaki. Tapi yang sebenarnya otak ligat bekerja, jantung pulak berdegup kencang. Orang yang mudah terganggu emosi dan ada masalah jantung sangat tidak sesuai melibatkan diri dalam bidang ini.
Ada plan untuk scam orang lain.
Dah banyak terjadi kes penipuan ini kat Malaysia. Tak kurang juga yang buat Forex macam MLM. Yang menanggung nama busuk dan dipandang sinis adalah trader yang sebenar.
Kelebihan Forex.
Ok, jika anda bebas daripada perkara di atas, bolehlah mula tengok apa yang best sangat tentang forex sehingga menyebabkan ramai berangan nak jadi full time forex trader.
Boleh buat di mana-mana yang anda suka, janji ada internet. Sekarang trade di handphone pun boleh. Tiada bos yang arah itu ini. Anda sendiri bos, anda sendiri kuli. Nak buat full time atau part time ikut suka masing-masing. Tiada orang tengah. Tak perlu cable-cable, bodek sana-sini. Modal kecil dan kos transaksi murah. Keuntungan tanpa batas. Boleh buat bila-bila anda suka, pasaran buka 24 jam sehari. Tiada persaingan seperti perniagaan konvensional. Maksudnya tak perlu nak berebut-rebut pelanggan. Tiada siapa boleh monopoli market. Ingat senang ke nak pusing market $5 trilion tu? Ada leverage. Modal kecil, tapi boleh trade macam ada modal besar. Risiko terhad. Anda hanya boleh rugi modal yang dilaburkan sahaja. Banyak material percuma; boleh belajar forex online, download ebook (buku pdf), ada demo account untuk praktis, video tutorial dan ada juga broker yang bagi account bonus percuma tanpa deposit.
Tapi anda harus ingat, proses belajar Forex haruslah dilakukan secara berperingkat (step by step). Tak boleh main lompat-lompat (skip) atau terjun macam tu jer.
Forex jika kita lihat on paper memang nampak senang. Tapi realitinya agak susah .
Kejayaan takkan datang tanpa usaha yang keras dan semestinya mengambil masa. Bergantung dengan keupayaan individu dan rezeki masing-masing, ada yang boleh berjaya dalam masa singkat dan ada yang perlahan.
Tujuan sebenar belajar Forex adalah bagaimana untuk membuat keputusan yang betul disamping untuk meminimumkan kerugian. Percayalah, keuntungan akan datang dengan sendirinya.
Pengenalan kepada Forex.
Mesti persoalan ini bermain dalam kepala anda sejak dari awal lagi:
Bagaimana nak buat untung?
Bagaimana nak mula?
Ok, kalau nak jadi Forex trader, anda akan lalu step di bawah:
Belajar forex dan cuba fahami sebaik mungkin. Buka akaun demo (percuma) dan praktis sambil ulang kaji. Buka akaun real (modal kecil) dan praktis lagi sehingga konsisten. Trade akaun real dengan modal yang lebih besar dan jana keuntungan.
Dah nampak flow dia kan?
Kalau berminat, bolehlah mula belajar. Tarik nafas dalam-dalam, kerana perjalanan yang bakal anda tempuh adalah sangat panjang dan mencabar .
Sebagai permulaan, anda boleh baca secara sepintas lalu berkenaan Forex dan sejarahnya di wikipedia.

Dunia Misteri Jutawan Forex Di Malaysia.
Saya kenal ramai forex trader yang bergelar jutawan. Mereka low profile, tak suka menunjuk-nunjuk dan sangat-sangat kaya.
Mereka membina kekayaan mereka melalui kemahiran trade forex.
Anda mungkin bertanya…
Bukan kah forex tu skim cepat kaya?
Di Malaysia, forex telah dimasukkan ke dalam golongan skim-skim cepat kaya, sama dengan MLM, pelaburan emas, mirza, dll.
Nama forex telah disalahgunakan oleh scammer-scammer yang berniat jahat untuk menipu rakyat Malaysia yang kurang berilmu dalam bidang ini.
Masalah yang sering berlaku apabila scammer berleluasa: pihak berkuasa akan buat “crackdown” untuk menangkap scammer dan malangnya, forex trader yang benar akan turut terkena tempias.
Ini lah sebab kenapa forex trader yang berjaya kat Malaysia sangat low-profile dan misteri.
Teknik Forex yang mereka guna untuk menjana pendapatan 7-angka setahun tak di ketahui sangat.
Malah, jiran-jiran mereka sering tertanya-tanya apakah sebenarnya pekerjaan si forex trader ni…
Rumah dah lah besar dan mewah. Tinggal kat gated-community dengan securiti guard.
Kereta pula, 3 hingga 4 biji pun ada..
Jika anda bertanya apa pekerjaan si forex trader, beliau akan menjawab samada buat bisnes restoran atau beliau mempunyai salon rambut.
Pekerjaan sebenar (forex trading), disembunyikan.
Dan bisnes mereka tak semestinya maju sangat. Ada yang “running at a loss”.
Tetapi si forex trader ni tak kisah sangat sebab punca duit beliau, lubuk untuk mendapat beribu-ribu dollar setiap hari tak datang dari bisnes fizikal yang dijalankan.
Pendapatan utama si forex trader datang dari => Forex.
Bisnes restoran atau salon yang dijalankan berfungsi sebagai “diversion” atau dalam Bahasa Melayu, penyamaran untuk mengaburi mata masyarakat sekeliling tentang punca pendapatan sebenar trader.
Bukan nak bertindak sombong atau berlagak pintar tetapi agak susah nak terangkan kat jiran sebelah yang anda baru gak buat setengah juta dollar semalam hasil trade forex.
Bagi mereka, perkara ni sangat-sangat mustahil.
Oleh itu, lebih baik si forex trader menyembunyikan pekerjaan mereka yang sebenarnya.
Bagaimana Dengan Anda?
Adakah anda dah berpuas hati dengan gaji anda sekarang?
Adakah anda dah mencapai segala impian anda, samada melancong ke Eropah, membeli rumah semi-d, membeli kereta sport, atau menunaikan Haji?
Adakah pekerjaan anda menghalang anda daripada meluangkan lebih banyak masa dengan suami, isteri dan anak-anak?
Cuba bayangkan hidup yang lebih baik.
Cuba bayangkan situasi di mana anda mempunyai pendapatan pasif dan wang yang cukup di bank sehingga anda tak perlu bergantung pada pekerjaan anda sekarang.
Cuba bayangkan KEBEBASAN dari stress, kekangan masa, trafik jam, bos yang jahat…
Jika anda nak kehidupan yang lebih baik….
Berhenti berdalih dan mula bertindak!
“Imperfect Action Is Better Than Perfect Inaction”
Ambil tindakan segera untuk belajar ilmu dan kemahiran FOREX yang akan menjana duit masuk ke poket anda di masa hadapan.
Dan apabila anda dah bersedia untuk trade, anda boleh buka akaun dengan forex broker seperti XM atau Fxprimus dan mula trade.

Opções de fx delta pegajoso

Opções de fx delta aderente
Compreender as regras de sticky delta e sticky strike para a volatilidade nos ajudará a determinar como a volatilidade se altera quando os mercados se movem.
A regra de ataque pegajosa:
Alguns participantes do mercado acreditam que quando a ação / índice se move, a inclinação da volatilidade para uma opção permanece inalterada com a greve. Esse comportamento é referido como a regra de aviso de aderência. A regra é applacável quando se espera que os mercados atinjam em um futuro próximo sem mudança significativa na volatilidade realizada.
A regra do delta pegajoso:
Existem alguns agentes do mercado que tendem a acreditar que a inclinação da volatilidade permanece inalterada com a liquidez. Por exemplo, vamos dizer que a volatilidade implícita para uma opção de caixa eletrônico é de 30% com o nível de índice em 100. Agora, se o índice cair para 90, essa regra previria que a opção de volatilidade implícita para 90% seria agora de 30%. Daí o comportamento é conhecido como moneyness pegajoso ou delta pegajoso.
A regra do stick delta é mais aplicável quando os mercados estão em tendência sem uma mudança significativa na volatilidade realizada.
A Figura 1 abaixo mostra figurativamente como o desvio de volatilidade é afetado pelas duas regras. Se o nível atual do underlier foi S 0 e o desvio de volatilidade para um determinado período foi indicado por L 0. Sob a regra de ataque pegajoso, o desvio permanece o mesmo L 0. Sob a regra sticky delta, o skew move-se na direção do movimento underlier. Assim, quando o underlier se move de S 0 para S 1, o novo skew é indicado por L 1.
figura 1: Volatilidade distorce enquanto o mercado se move.
Ambas as regras sticky strike e sticky delta provaram fornecer oportunidades de arbitragem. No entanto, essas regras nos ajudam a entender os riscos dos produtos comercializados.
Sabe-se que quando o mercado cai, a volatilidade imposta é observada a aumentar. E. Derman descreve uma regra implícita de árvore que é consistente com esta observação e também é argumentada como livre de arbitragem.
[1] Regimes de volatilidade, Notas de Pesquisa de Estratégias Quantitativas, Emanuel Derman.
Artigos relacionados.
Eu não quero resolver seus problemas. Eu tenho meus próprios problemas para resolver. "
& mdash; Aluno de 4ª série anônimo.
"Eu não sei porque eu deveria ter que aprender Álgebra. Eu nunca vou para lá."
"Desde que os matemáticos invadiram a teoria da relatividade, eu não a entendo mais."
"É mais fácil enquadrar o círculo do que contornar um matemático."
& mdash; Augustus De Morgan.
"Um engenheiro pensa que suas equações são uma aproximação da realidade. Um físico acha que a realidade é uma aproximação para suas equações. Um matemático não se importa."
"Que perda? Eu sou apenas curto o lucro no momento."

Brincando com o QuantLib.
Estatísticas do Blog.
Delta do Dinheiro Fixo.
O termo dinâmica do sorriso refere-se a uma regra como um sorriso de volatilidade implícita se comporta quando os movimentos subjacentes. Essa regra pode ser estimada a partir de dados históricos reais, implícita por um modelo de precificação ou configurada a partir do zero.
Hoje estou olhando algumas especificações comuns, mas de um ângulo ligeiramente diferente. Eu não estou olhando para o efeito sobre o sorriso de volatilidade implícita, mas sim sobre a densidade subjacente em sua medida de preço natural.
Isso pode ser feito usando o Teorema de Breeden-Litzenberger, que vincula a densidade do subjacente a preços de compra não deflacionados para opções atingidas por greve.
A ideia é ter uma visão mais natural dessa dinâmica & # 8211; enquanto a volatilidade implícita pode ser algo que achamos que temos uma intuição, uma densidade parece ser uma descrição um pouco mais fundamentada do que realmente está acontecendo.
Eu estou olhando para um subjacente do mundo da taxa de juros com nível para a frente e opções sobre este subjacente que expiram em 5 anos. Pense nisso como swaptions européias, por exemplo. Estou assumindo um sorriso de volatilidade implícito gerado pelo modelo SABR, em termos de volatilidades log-normais. As observações traduzem-se facilmente em sorrisos de volatilidade lognormal deslocados, uma vez que são utilizados atualmente para algumas moedas devido às baixas taxas.
A questão é agora, o que acontece com um sorriso se o nível de avanço do banco sobe para dizer ou? Ninguém realmente sabe & # 8221; isso é claro. Mas você precisa fazer uma suposição sempre que observar os efeitos resultantes das mudanças nas taxas. Essa suposição pode ser crucial para a eficácia de suas coberturas delta. É também de suma importância para a especificação de testes de estresse, onde maiores taxas de câmbio são aplicadas. Isso ficará claro em breve.
Eu estou olhando para cinco regras diferentes para a dinâmica do sorriso:
Dinâmica de greve pegajosa, significando que após a mudança de taxa as volatilidades permanecem as mesmas para cada greve fixa Dinheiro absoluto pegajoso atribuindo a volatilidade original em greve ao greve se o deslocamento de taxa for modelo Sticky mantendo os parâmetros do modelo (SABR) constantes, ou seja, as volatilidades após o turno são calculados com os mesmos parâmetros SABR que antes, exceto para o forward, que é agora em vez de antes da volatilidade do ponto de referência aproximado Sticky mantendo a volatilidade do ponto base aproximado, definida como o produto da volatilidade lognormal direta e implícita, constante. Ao mesmo tempo, o sorriso da volatilidade é movido em um espaço monetário absoluto, o que significa que a volatilidade (lognormal) na greve é ​​após o deslocamento da taxa. Volumes-base de volatilidade mantendo constante a exata base de volatilidade do ponto base, definida como o parâmetro de volatilidade do modelo normal de Black, em nosso caso combinando um preço produzido pelo modelo lognormal Black. Mais uma vez, o preço é relevante para greve após uma mudança por.
Obviamente, seria necessário alguma regra de extrapolação para a vida absoluta e a dinâmica aproximada de volatilidade do ponto base, para greves abaixo do tamanho do turno. Nós simplesmente ignoramos isso aqui e desenhamos as imagens começando em vez disso, isso é interessante o suficiente para o momento. Observe também que, para a dinâmica de volatilidade do ponto de referência fixo para os desvios abaixo da volatilidade do ponto-base implícito, a volatilidade é zero.
Vamos começar com um sorriso SABR dado pelos parâmetros. Este é simplesmente um modelo Black76, então temos um sorriso plano e normal. Não deveria ser surpresa que, neste caso, três das cinco dinâmicas produzam o mesmo resultado. Para strike grudento, moneyness pegajoso e modelo sticky, temos as seguintes densidades subjacentes para o nível de taxa original, a mudança para e a mudança para.
As densidades mantêm sua natureza lognormal e, como a volatilidade do log permanece a mesma, a variância absoluta efetiva das taxas subjacentes aumenta quando as taxas sobem. Sob grandes upshifts provenientes de uma baixa taxa inicial, isso pode levar a densidades muito gordas e irrealistas.
A variante do ponto de referência aproximado pegajoso produz um resultado diferente.
mantendo a natureza lognormal, mas ajustando a volatilidade logarítmica para taxas mais altas, de tal modo que a variância absoluta das taxas permaneça mais (mas não totalmente) constante do que nas outras alternativas, o que é provavelmente mais realístico sob grandes upshifts.
Eu não tenho uma imagem para a última dinâmica (ponto de referência exato e pegajoso), mas é claro, que essa dinâmica apenas traduz a densidade, preservando a forma exatamente.
O segundo exemplo é novamente sem volatilidade estocástica (ou seja, um exemplo de CEV puro), mas agora com a produção de um desvio.
e modelo pegajoso.
levar a densidades novamente com variância absoluta ligeiramente crescente, enquanto ponto de referência aproximado pegajoso.
aproximadamente mantém as variâncias absolutas constantes. No entanto, existem alguns artefatos surgindo para ataques baixos. Isso ocorre porque, antigamente, volatilidades bastante altas, pertencentes a greves baixas, são agora aplicadas a greves mais altas. Este é um problema óbvio dessa dinâmica.
O dinheiro grosso do aboslute tem problemas semelhantes.
ao mesmo tempo, levando a maiores variações absolutas para taxas mais altas.
Novamente, a volatilidade exata do ponto base apenas traduzirá a densidade.
Agora vamos adicionar volatilidade estocástica e olhar. O sorriso agora parece com isso.
ponto de referência aproximado pegajoso.
mostram um comportamento qualitativo semelhante ao do caso do CEV, a dinâmica aproximada do ponto base novamente com os artefatos para greves baixas. Da mesma forma para moneyness absoluto pegajoso.
em outro lugar, mantendo a variação absoluta das taxas praticamente a mesma nos turnos.
O ponto de referência exato e pegajoso irá novamente traduzir a densidade original por.
Que tipo de dinâmica corresponde melhor à realidade, está no final sujeito a uma verificação estatística dos dados históricos (com todas as dificuldades nesse procedimento). Ou o que os comerciantes consideram ser a dinâmica mais apropriada. Se eu tivesse que escolher entre as alternativas acima, o ponto de referência (exato) ou o modelo pegajoso parecem mais razoáveis.

Gregos grudentos e pegajosos-delta - vítimas da crise do subprime?
Declaração patrocinada.
01 de abril de 2008.
Será que a ponta das asas de uma borboleta no Brasil provocou um tornado no Texas?
O impacto da crise do subprime não se restringe a obrigações de dívida garantidas e ao Bear Stearns, para citar apenas dois exemplos óbvios. O Northern Trust do Reino Unido, com exposição direta insignificante a subprime, sentiu o calado das asas da borboleta subprime. Da mesma forma, uma vítima óbvia tem sido o dólar dos EUA (USD). Marginalmente menos óbvio foi que o declínio do USD do material contra o iene (JPY) resultaria em aumentos significativos na Volatilidade com Vantagens (ATMV) e talvez, menos obviamente, no aumento da assimetria que favorece os USD.

Opções de fx delta aderente
No meu trabalho, muitas vezes vejo preços de opção ou vols cotados contra deltas e não contra greves. Por exemplo, para as opções de zinco de março de 2013, posso ver 5 citações disponíveis para deltas da seguinte forma:
Os mesmos 5 valores -10, -25, +10, +25, + 50 são sempre usados. Quais são esses deltas? Quais são as unidades? Por que esses 5 valores são escolhidos?
Delta é a derivada parcial do valor da opção em relação ao valor do ativo subjacente. Uma opção com um delta de 0,5 (aqui listado como +50 pontos) sobe \ $ 0,50 se o ativo subjacente subir \ $ 1,00. Ou desce $ 0,50 se o ativo subjacente cair $ 1,00. Tenha em mente que delta é um derivativo instantâneo, então o valor mudará tanto no tempo (charme é a mudança no delta com o tempo) quanto com mudanças no valor do ativo subjacente (gama é a mudança no delta com o ativo subjacente, que é também a segunda derivada parcial do valor da opção em relação ao valor do ativo subjacente).
O delta real é um pouco diferente de +50, +25 e assim por diante, mas eles estão próximos o suficiente. Tenho certeza de que você pode encontrar os valores reais do delta. Eu acho que eles estão listados assim porque se você está protegendo uma carteira, você realmente se importa com o delta, não com a greve. E. G., se eu apenas quisesse fazer hedge e possuísse uma ação, eu poderia comprar duas opções de 50 pips, que somariam um delta de zero.
A página da Wikipédia sobre os gregos é um bom ponto de partida.
Eu manejo curvas de volatilidade onde moneyness é cotado em delta por um palpite iterativo:
Use um palpite inicial para delta de 0,5 (call) / - 0,5 (put) Olhe para cima a volatilidade na curva usando o palpite para delta Calcular delta para a opção usando o vol encontrado em 2. Repetir usando Newton-Raphson, até a diferença no delta é pequeno o suficiente.
Cotar preços em delta torna mais fácil para um comerciante delta cobrir seu portfólio. (O trader sabe o delta que eles estão tentando adicionar ou cortar, então o preço cotado em delta lhes dá o valor do contrato que eles precisam para negociar rapidamente, sem precisar de uma calculadora, muito menos de um modelo de precificação)
Deltas representam o rácio de cobertura; isto é, 5%, 10%, 25%. ou seja, compre duas opções de compra de 50 pts, compre 100 ações para uma perfeita proteção a preço, feito. A volatilidade Delta "sorriso" deve ser representada com o menor delta com a maior volatilidade para o maior delta com a menor volatilidade, sendo a opção do dinheiro, atingida pelo preço da ação. 50 delta colocados \ 100 dólares A IBM está com 100 greves. Compre 2 50 puts delta, venda 100 ações da IBM a $ 100. Opções mais altas de volatilidade têm menos chance de acabar no dinheiro na expiração. Uma maneira fácil de pensar nisso é 5 delta tem 5% de chance de acabar no dinheiro no vencimento. Em vez de fazer hedge com o contrato subjacente, os deltas inferiores podem ser compensados ​​pela venda de outras opções contra. compre dois 5 deltas e venda um 10 delta contra ele.
A questão pode ser motivada pela maneira como as volatilidades implícitas de fechamento são relatadas para os contratos de metais prontos para a quarta-feira, negociados na LME. A função LMIV on Bloomberg fornece cotações vol para 50 opções de delta e prêmios / descontos correspondentes para 10, 25 colocações de delta e chamadas.
Os contratos futuros de metais da LME são contratos a prazo com prazos de vencimento constantes sendo cotados eletronicamente para vários termos (por exemplo, LMCADS03 Comdty para cobre de 3 meses). A maior parte da liquidez está agrupada nos contratos de terceira terça-feira para os quais não há cotações eletrônicas contínuas (pelo menos não na Bloomberg) e que, portanto, são freqüentemente cotadas por prêmio / desconto do contrato a termo mais próximo.
Vou discordar de richardh aqui, pois parece incomum citar as opções com 10% de delta.
Em vez disso, acho que "+25 PONTOS" significa uma opção cujo preço de exercício está 25 pontos acima do preço futuro de zinco de março de 2013 (não o preço à vista atual do zinco). Em outras palavras, uma opção com 25 pontos do dinheiro (suponho que sejam chamadas).
Citando os preços das opções desta maneira é muito mais estável. O preço de uma opção em X com um preço de exercício fixo varia conforme o preço de X varia. No entanto, o preço de uma opção com preço de exercício X + 25 é relativamente estável (uma vez que o próprio X + 25 varia com o X).
Da mesma forma, a volatilidade da opção segue um padrão "V" quando traçada contra o preço de exercício (o "sorriso de volatilidade"), com a menor volatilidade quando o preço de exercício é igual ao preço atual. Portanto, você precisa apenas de 4 volatilidades (2 de cada lado do preço atual) para obter o gráfico de volatilidade versus preço de exercício. Eu não tenho certeza porque eles te dão 5 (e porque o 5º não é zero delta).
Para ser absolutamente pedante, Black-Scholes analisa o Log [strikeprice / currentprice], não o strikeprice menos o currentprice. No entanto, se a greve estiver próxima do preço atual, esses dois números são quase iguais.

Opções de fx delta aderente
Home Deltaquants é um recurso on-line para o mundo de derivativos de ações. Estamos desenvolvendo bibliotecas Xll baseadas em C ++ que podem ser baixadas gratuitamente na seção "Quant Libraries". Estamos ao mesmo tempo fazendo upload de muitos artigos (confira a seção da zona de aprendizado), que achamos que deve ser útil para quem quer se aprofundar no mundo dos derivativos de ações. Para comentários e feedback, por favor escreva-nos para contactus @ deltaquants ou feedback @ deltaquants.
Zona de Aprendizagem.
Experimente o quiz de derivativos de ações Leia mais.
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Novas atualizações.
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Zona de Aprendizagem - Artigos.
Eu não quero resolver seus problemas. Eu tenho meus próprios problemas para resolver. "
& mdash; Aluno de 4ª série anônimo.
"Eu não sei porque eu deveria ter que aprender Álgebra. Eu nunca vou para lá."
"Desde que os matemáticos invadiram a teoria da relatividade, eu não a entendo mais."
"É mais fácil enquadrar o círculo do que contornar um matemático."
& mdash; Augustus De Morgan.
"Um engenheiro pensa que suas equações são uma aproximação da realidade. Um físico acha que a realidade é uma aproximação para suas equações. Um matemático não se importa."
"Que perda? Eu sou apenas curto o lucro no momento."

Você está aqui: Global Markets Formação »FX Exotic Options.
Opções Exóticas FX.
Este curso de dois dias oferece aos participantes uma compreensão completa dos preços, proteção e gerenciamento de risco das opções exóticas FX. FX é notável por ter um mercado muito líquido e transparente em certos tipos de opções dependentes de caminhos exóticos, como opções de barreira. Embora os contratos de opções de baunilha possam ser cotados diretamente com um sorriso de volatilidade, esses títulos dependentes de caminho são sensíveis não apenas ao sorriso, mas também à dinâmica subjacente do sorriso. Isso significa que a escolha correta do modelo é primordial.
Este curso aborda as convenções de mercado aplicáveis ​​ao câmbio, com vistas à correta construção da superfície de volatilidade para as opções de negociação. O curso também analisa os modelos mais usados, como volga-vanna, volatilidade local, volatilidade estocástica e LSV. As opções de barreira de primeira geração serão discutidas extensivamente, incluindo variantes como barreiras iniciais e futuras, e o curso também analisa exóticos de segunda geração e como estes introduzem complexidades de preços. Técnicas de gerenciamento de risco para o livro de exotics são discutidas, incluindo algumas técnicas do praticante, como flexão de barreira para risco de barreira.

Opções de negociação moneycontrol

Opções E Futuros.
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Opções de negociação de moneycontrol
(14 de fevereiro de 2018)
TODOS OS VENCEDORES DO TEMPO.
NOSSOS PACOTES.
Super Combo.
Poderosa mistura de pacotes de investidores e investidores com aconselhamento especializado em tempo hábil.
Projetado especialmente para os comerciantes que procuram aproveitar as oportunidades de lucro dos mercados voláteis.
Fundamental.
Para todos os investidores que procuram descobrir ações que estão prontas para se mover.
Copyright © e-Eighteen Ltd. Todos os direitos reservados. É proibida a reprodução de artigos de notícias, fotos, vídeos ou qualquer outro conteúdo, no todo ou em parte, em qualquer forma ou meio, sem permissão explícita do controle monetário.
Direitos autorais & copy; e-Eighteen Ltd Todos os direitos resderved. É proibida a reprodução de artigos de notícias, fotos, vídeos ou qualquer outro conteúdo, no todo ou em parte, em qualquer forma ou meio, sem permissão explícita do controle monetário.
Obrigado por se registrar.
Representante respectivo corretor irá alcançá-lo em breve.

Opções de negociação de moneycontrol
Enriquecendo os Investidores desde 1998.
Soluções de Negociação Rentáveis ​​para o Investidor Inteligente.
Guia para Iniciantes em Opções.
O que é uma opção?
Uma opção é um contrato que dá ao comprador o direito, mas não a obrigação, de comprar ou vender um ativo subjacente (uma ação ou índice) a um preço específico em ou antes de uma determinada data.
Uma opção é um derivado. Isto é, seu valor é derivado de outra coisa. No caso de uma opção de ações, seu valor é baseado no estoque subjacente (patrimônio líquido). No caso de uma opção de índice, seu valor é baseado no índice subjacente (patrimônio líquido).
· As Opções Listadas são títulos, assim como ações.
· As opções são negociadas como ações, com compradores fazendo ofertas e vendedores fazendo ofertas.
· Opções são ativamente negociadas em um mercado listado, assim como ações. Eles podem ser comprados e vendidos como qualquer outra segurança.
· As opções são derivadas, ao contrário das ações (ou seja, as opções derivam seu valor de outra coisa, a garantia subjacente).
· Opções têm datas de vencimento, enquanto ações não.
· Não há um número fixo de opções, pois existem ações disponíveis.
· Os acionistas têm uma participação na empresa, com direito a voto e dividendos. Opções não transmitem tais direitos.
Algumas pessoas permanecem confusas com as opções. A verdade é que a maioria das pessoas usa as opções há algum tempo, porque a opção por opções está embutida em tudo, desde hipotecas até seguro de automóveis. No mundo das opções listadas, no entanto, sua existência é muito mais clara.
Tipos de expiração.
Existem dois tipos diferentes de opções em relação à expiração. Existe uma opção de estilo europeu e uma opção de estilo americano. A opção de estilo europeu não pode ser exercida até a data de expiração. Uma vez que um investidor tenha comprado a opção, ela deve ser mantida até o vencimento. Uma opção de estilo americano pode ser exercida a qualquer momento após a compra. Hoje, a maioria das opções de ações que são negociadas são opções de estilo americano. E muitas opções de índice são do estilo americano. No entanto, existem muitas opções de índice que são opções de estilo europeu. Um investidor deve estar ciente disso ao considerar a compra de uma opção de índice.
Uma opção Premium é o preço da opção. É o preço que você paga para comprar a opção. Por exemplo, um XYZ May 30 Call (assim, é uma opção para comprar ações da empresa XYZ) pode ter um prêmio de opção de Rs.2.
O Preço de Exercício (ou Exercício) é o preço pelo qual o título subjacente (neste caso, XYZ) pode ser comprado ou vendido conforme especificado no contrato de opção.
A Data de Expiração é o dia em que a opção não é mais válida e deixa de existir. A data de vencimento de todas as opções de ações listadas nos EUA é a terceira sexta-feira do mês (exceto quando cai em um feriado e, nesse caso, é na quinta-feira).
As pessoas que compram opções têm direito, e isso é o direito de exercitar.
Quando um detentor de opções opta por exercer uma opção, um processo começa a encontrar um escritor com o mesmo tipo de opção (ou seja, classe, preço de exercício e tipo de opção). Uma vez encontrado, esse escritor pode ser atribuído.
Existem dois tipos de opções - ligar e colocar. Uma chamada dá ao comprador o direito, mas não a obrigação, de comprar o instrumento subjacente. A put dá ao comprador o direito, mas não a obrigação, de vender o instrumento subjacente.
O preço predeterminado pelo qual o comprador e o vendedor de uma opção concordaram é o preço de exercício, também chamado de preço de exercício ou preço de greve. Cada opção em um instrumento subjacente deve ter vários preços de exercício.
Opção de compra - o preço do instrumento subjacente é maior que o preço de exercício.
Opção de venda - o preço do instrumento subjacente é inferior ao preço de exercício.
Opção de compra - o preço do instrumento subjacente é menor que o preço de exercício.
Opção de venda - o preço do instrumento subjacente é superior ao preço de exercício.
O preço subjacente é equivalente ao preço de exercício.
Opções têm vidas finitas. O dia de vencimento da opção é o último dia em que o proprietário da opção pode exercer a opção. As opções americanas podem ser exercidas a qualquer momento antes da data de vencimento, a critério do proprietário.
Uma classe de opções é todas as opções e chamadas em um determinado instrumento subjacente. O que uma opção dá a uma pessoa o direito de comprar ou vender é o instrumento subjacente. No caso de opções de índice, o subjacente deve ser um índice como o índice Sensitive (Sensex) ou S & P CNX NIFTY ou ações individuais.
Uma opção pode ser liquidada de três formas A fechar compra ou venda, abandono e exercício. Compra e venda de opções são os métodos mais comuns de liquidação. Uma opção dá o direito de comprar ou vender um instrumento subjacente a um preço fixo.
Os preços das opções são definidos pelas negociações entre compradores e vendedores. Os preços das opções são influenciados principalmente pelas expectativas de preços futuros dos compradores e vendedores e pela relação do preço da opção com o preço do instrumento.
O valor de tempo de uma opção é o valor que o prêmio excede o valor intrínseco. Valor do tempo = Prêmio da opção - valor intrínseco.
Investimento a Longo Prazo.
Multiplique seu capital investindo.
tendências de longo prazo.
Ações Multi Bagger.
Crie riqueza para você.
identificando rapidamente as mudanças nas tendências, montando a tendência.
reserva de lucros no final da tendência.
Capture balanços de preços breves.
estoques de tendência em movimento rápido.
volatilidade de preços intra-dia das ações mais ativas em ambos.
BULLISH & amp; BEARISH Mercados.
gerar um fluxo constante de renda diária.
Negociação do dia de futuros.
lucros máximos todos os dias.
contrato de futuros de alta liquidez.
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• Isenção de responsabilidade: Futuros, opção & amp; negociação de ações é uma atividade de alto risco. Qualquer ação que você escolher tomar nos mercados é totalmente de sua responsabilidade. A TradersEdgeIndia não será responsável por nenhum dano ou perda, direta ou indireta, conseqüente ou incidental, resultante do uso dessas informações. Esta informação não é uma oferta de venda nem uma solicitação para comprar qualquer um dos títulos aqui mencionados. Os escritores podem ou não estar negociando os valores mobiliários mencionados.
• Todos os nomes ou produtos mencionados são marcas comerciais ou marcas registradas de seus respectivos proprietários.

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O cenário de negociação de ações é muito diferente hoje do que há alguns anos atrás. Neste vídeo, nosso especialista explica como você pode usar o portal dot com ICICIdirect para alavancar seus inúmeros recursos e obter uma vantagem inicial sobre o comércio de opções na Índia.
1) O que é patrimônio? Os melhores recursos e dicas de negociação de ações.
2) O que são futuros e opções? O programa essencial para o investidor de nível de entrada.
3) Aprenda os futuros negociando de maneira inteligente!
4) Porta de entrada para ações investindo na Índia.
5) Investimento em fundos mútuos simplificado.
6) Mercado acionário indiano: como encontrar os melhores produtos para investir.

Análise de Opções.
Ao analisar os dados de Opções, pode-se analisar o intervalo de negociação de nível amplo no estoque. Por favor, note que nem todos os estoques de F & O têm opções líquidas, por isso tome cuidado ao comprar / vender opções de contadores sem liquidez.
Chamar com Maior Juro Aberto normalmente determina o preço do script que não será fácil de cruzar no lado positivo (Resistência).
Colocar com Maior Interesse Aberto normalmente determina o ponto de preço para o script que não será fácil de cruzar no lado negativo (Suporte).
A comparação dos dados de opções para um script com dados de dias anteriores fornecerá informações sobre a mudança no intervalo de negociação, se a pressão está no lado positivo ou negativo.
Direitos autorais & copy; 2016 Soluções de Software Gumption Labs Pvt. Ltd. | Todos os direitos.

Oficina de negociação de opções grátis.
Participe de uma Classe de Negociação de Futuros e Opções GRATUITA:
Mecânica de Negociação de Opções com Oportunidades Direcionais no mercado de derivativos. Stock options e Index Options como instrumentos evitados pelo risco. Introdução à nossa análise de PVOD com o uso de dados de mercado quantitativos para analisar o prêmio de opções em relação a preço, juros em aberto, volume, entrega e volatilidade implícita. Usando opções para gerar receita com estratégias de hedge. Complementar alta chá & amp; Lanches com Sessão de Rede de Traders. Introdução ao nosso Programa de Negociação Flagship & # 8220; Comprehensive Futures & amp; Opções Trader & # 8221;
Investidores Shah: A-005 / A, Térreo, Borda Ocidental -2, Espaços Kanakia, Off. Western Express Highway, atrás do Metro Mall Borivali (leste), Mumbai 400 066.
Pangborn India Ltd, 101 Uma ala Solaris 1, Opp. L & amp; T (porta no.6), estrada de Saki Vihar, Powai, Mumbai.
InstaOffice Business Solutions, 259, 2 º andar, 6 ª Cruz, Indiranagar, Binnamangala, Estágio 1, Indiranagar, Bengaluru, Karnataka 560041.
A colméia em VR Bengaluru, Itpl Main Road, Mahadevpura, Bengaluru & # 8211; 560048.
MANHÃ SHARMA.
APARÊNCIA DA MÍDIA.
Manish Sharma aparecem regularmente no ET Now, CNBC Awaaz & amp; Zee Biz para várias recomendações sobre Derivativos, Ações & amp; Commodities. Shows ao vivo, gravações e Chamadas Telefônicas fornecendo recomendações sobre Ações, Derivativos, Commodities & amp; Moedas.
Especialista da FNO Trading reconhecido pela Moneycontrol e renomado palestrante da Dalal Street com mais de uma década de experiência em Trading e Treinamento de Opções.
SOBRE O ALTO-FALANTE
Manish Sharma é um veterano no mundo dos Derivatives Trading & amp; também Especializada em Análise de Cadeia de Opções, Leituras de acumulação de Juros Abertos como Descartamento Longo, Análise de Juros Abertos Semanais, breakouts Preço-Volume, Cobertura de Índice de Opções / Escala de Gama, Gestão de Perda de Parada / Gestão de Fundos.
Ele é um B. E. por qualificação e um profissional de futuros e opções. Ele é um instrutor veterano em Bolsas de Valores com mais de 7 anos de experiência em negociação de múltiplos ativos.
Ele também é especialista em negociação quantitativa agressiva em Opções devido ao seu histórico de engenharia. Conhecido por seus relatórios de pesquisa semanais que são amplamente baseados na relação Open interest-Price, ele está constantemente procurando as melhores oportunidades no mercado para ganhar dinheiro consistente em Estratégias de Opções.
"Sempre troquei por estudos de análise técnica e não estava fazendo muito mal com a minha negociação, mas sempre quis aprender sobre negociação de opções, onde eu tinha visto outros fazer bons lucros consistentes com menos capital, então decidi aprender e com a equipe de instrutores do DTA realmente me ajudou a decodificar o mistério da negociação de opções com aplicações práticas em grego, estratégias de opções neutras em delta e conceitos detalhados de Volatilidade Implícita. & # 8221;
"Sinceramente, quero agradecer à equipe de traders da Derivative Trading Academy pelo seu fantástico esforço para construir este instituto de derivativos com o Professional Options Trading Program."
"Depois de fazer tantos cursos de comércio eu não estava muito satisfeito com o meu desempenho comercial, mas depois de participar do seminário introdutório gratuito sobre opções eu decidi me inscrever para o curso e isso provou ser uma felicidade para mim, como a minha negociação tem foi melhorado consideravelmente, com o mesmo capital que eu estava negociando no mercado à vista estou fazendo apenas em opções e os retornos percentuais gerados são maiores agora, eu também devo apreciar o serviço pós-programa fornecido pelo DTA. & # 8221;
"A negociação de opções sempre foi minha área de interesse, já que vi traders ganhando dinheiro com isso, então eu sempre quis um mentor que pudesse me guiar pelo mesmo e minha busca terminou com a Derivative Trading Academy." # 8221;
Com os volumes de câmbio subindo no segmento de Futuros e opções a cada ano, com volumes médios diários sendo 80% do volume de negócios total, o conhecimento para o assunto tornou-se extremamente importante e em ascensão. A negociação de derivativos e opções é o segmento mais relevante para os participantes do mercado existentes para capitalizar. consulte Mais informação.
Opções Trading Negociação de Ações Análise Técnica Negociação de Commodities.
Contate-Nos.
Academia de Negociação de Derivativos, Kanakia Western Edge 2, ao lado do Metro Mall, Borivali East na Western Express Highway, Mumbai 40066 Mobile No .: 097699 43216.

Se as opções de ações dos empregados forem gastas

Localize e arquive os funcionários e a descoberta de declarações incorretas: o papel das opções de ações

Descobrimos que as empresas concedem mais opções de ações ordinárias e de arquivo quando estão envolvidas em violações de relatórios financeiros, de acordo com os incentivos da administração para desencorajar denúncias de funcionários. As empresas que violam concedem mais opções de classificação e registro durante períodos de relatórios incorretos em relação às empresas de controle e às suas próprias concessões de opções em anos sem violação. Além disso, é mais provável que empresas falsas que concedem mais opções de base e arquivo durante anos de violação evitem alegações de denúncias. Embora a Lei Dodd-Frank (2010) ofereça recompensas financeiras para incentivar denúncias, nossas descobertas sugerem que as empresas desestimulam denúncias, dando aos funcionários incentivos para permanecerem quietos sobre irregularidades financeiras.

Classificação JEL.

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Este trabalho foi o vencedor de 2011–2012 do Prêmio Glen McLaughlin de Pesquisa em Contabilidade e Ética da Universidade de Oklahoma. Agradecemos a SP Kothari (o editor), a Richard Sloan (o debatedor), a Tom Chang, a Carola Frydman, a Frank Hodge, a Rick Mergenthaler, Mark Peecher e aos participantes da conferência UBCOW (Universidades de British Columbia, Oregon e Washington) de 2011 , a Conferência de Economia e Contabilidade Financeira de 2012 (CFEA), a reunião anual da American Finance Association de 2013, a Universidade do Estado do Arizona, Universidade de Lehigh, Universidade Tecnológica de Nanyang, Universidade Nacional de Cingapura, Universidade A & M do Texas, Universidade de Notre Dame, A Universidade de Oklahoma e a Conferência CFA-FAJ-Schulich da Universidade de York, patrocinada pelo CFA Institute, pelo Financial Analysts Journal e pela Schulich School of Business. Agradecemos a Jonathan Karpoff, Scott Lee e Gerald Martin por compartilhar gentilmente seus dados sobre a aplicação da SEC. Somos gratos pelo apoio financeiro do Whitcomb Center da Rutgers Business School e da Goizueta Business School. Todos os erros permanecem nossos.

Compensação de opções de ações: impacto do reconhecimento de despesas nos indicadores de desempenho de empresas estrangeiras listadas nos EUA.

O IFRS 2, Pagamento Baseado em Ações, exige que as empresas reconheçam o valor justo das opções de ações de funcionários como uma despesa. Para averiguar o impacto que o reconhecimento terá sobre as empresas domiciliadas em países sujeitos aos padrões contábeis emitidos pelos parceiros de definição de relacionamento do IASB, esta pesquisa examina as divulgações pro forma de opções de ações fornecidas no Formulário 20-F por australianos, britânicos, canadenses, franceses, alemães. , Empresas japonesas e irlandesas.

Os resultados indicam que o impacto médio do reconhecimento de despesas no EPS diluído será de aproximadamente 40% e será material a um nível de 5% para a maioria das empresas. O impacto varia significativamente por país. Em média, a despesa anual reconhecida será de aproximadamente 15% do patrimônio líquido inicial. Para a maioria das empresas, a taxa representará menos de 1% do patrimônio inicial. Mais uma vez, o impacto varia significativamente por país.

As constatações indicam que os requisitos ausentes de que as despesas com compensação de ações sejam reconhecidas, um viés material de alta será refletido nos indicadores de desempenho de muitas empresas fora dos EUA e a comparabilidade internacional será prejudicada. Como nossa análise é baseada somente em dados do ano 2000 para empresas domiciliadas em sete países, pesquisas futuras serão necessárias para determinar o impacto do reconhecimento de despesas em uma gama mais ampla de empresas que relatam o IFRS 2.

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Notas às Demonstrações Financeiras Consolidadas - Relatório Anual 2008.

Navegação Hierárquica.

1. Base de Apresentação.

O ano fiscal da Cisco Systems, Inc. (a "Empresa" ou "Cisco") é de 52 ou 53 semanas, que termina no último sábado de julho. O exercício fiscal de 2008, 2007 e 2006 foram exercícios fiscais de 52 semanas. As Demonstrações Financeiras Consolidadas incluem as contas da Cisco e suas subsidiárias. Todas as contas e transações entre companhias foram eliminados. A empresa realiza negócios globalmente e é gerenciada principalmente em uma base geográfica nos seguintes cinemas: Estados Unidos e Canadá; Mercados Europeus; Mercados emergentes; Ásia-Pacífico; e no Japão. O teatro dos Mercados Emergentes consiste da Europa Oriental, América Latina, Oriente Médio e África, e da Rússia e da Comunidade de Estados Independentes (CEI).

2. Sumário das Políticas Contábeis Significativas.

(a) Caixa e Equivalentes de Caixa.

A Companhia considera todos os investimentos de alta liquidez comprados com prazo original ou remanescente de menos de três meses na data da compra como equivalentes de caixa. Caixa e equivalentes de caixa são mantidos em diversas instituições financeiras.

(b) Investimentos.

Os investimentos da Companhia incluem títulos de agências governamentais e governamentais, títulos de dívida de empresas, títulos lastreados em ativos, títulos e notas municipais e títulos de capital com ações negociadas em bolsa. Esses investimentos são mantidos sob custódia de várias instituições financeiras importantes. O método de identificação específico é utilizado para determinar a base de custo dos títulos de renda fixa alienados. O método da média ponderada é utilizado para determinar a base de custo dos títulos patrimoniais negociados publicamente alienados. Em 26 de julho de 2008 e 28 de julho de 2007, os investimentos da Companhia foram classificados como disponíveis para venda e esses investimentos são registrados no Balanço Patrimonial Consolidado pelo valor justo. Ganhos e perdas não realizados sobre esses investimentos, na medida em que os investimentos não são protegidos, são incluídos como um componente separado do resultado abrangente acumulado, líquido de impostos.

A Companhia reconhece uma redução no valor recuperável quando um declínio no valor justo de seus investimentos abaixo da base de custo é considerado não temporário. A Companhia considera vários fatores ao determinar se deve reconhecer uma redução no valor recuperável, incluindo o período e a extensão em que o valor justo foi menor que a base de custo da Companhia, a condição financeira e as perspectivas de curto prazo da investida, e a intenção da empresa e a capacidade de manter o investimento por um período de tempo suficiente para permitir qualquer recuperação antecipada do valor de mercado.

A Companhia também possui investimentos em empresas de capital fechado. Estes investimentos estão incluídos em outros ativos no Balanço Patrimonial Consolidado e são principalmente contabilizados pelo custo. A Companhia monitora esses investimentos quanto a perdas por redução ao valor recuperável e faz reduções apropriadas nos valores contábeis, caso a Companhia determine que uma redução no valor recuperável é necessária, principalmente com base na situação financeira e nas perspectivas de curto prazo dessas empresas.

(c) estoques.

Os estoques são demonstrados pelo menor valor entre custo ou mercado. O custo é calculado usando o custo padrão, que se aproxima do custo real, em uma base de primeiro a entrar, primeiro a sair. A Companhia fornece reduções de estoque com base em estoques em excesso e obsoletos, determinados principalmente por previsões futuras de demanda. A redução é medida como a diferença entre o custo do estoque e o mercado com base em suposições sobre a demanda futura e cobrada da provisão de estoque, que é um componente do custo de vendas. No momento do reconhecimento da perda, uma base nova e de custo mais baixo para esse inventário é estabelecida, e as mudanças subseqüentes nos fatos e circunstâncias não resultam na restauração ou aumento naquela base de custo recém-estabelecida. Além disso, a Companhia registra um passivo para compromissos de compra firmes, não canceláveis ​​e incondicionais com fabricantes e fornecedores contratados por quantidades que excedam as previsões futuras de demanda da Companhia, consistentes com sua avaliação de estoques excessivos e obsoletos.

(d) Provisão para devedores duvidosos.

A provisão para créditos de liquidação duvidosa é baseada na avaliação da empresa sobre a cobrança das contas dos clientes. A Companhia revisa regularmente a provisão considerando fatores como experiência histórica, qualidade de crédito, a idade dos saldos de contas a receber e condições econômicas atuais que podem afetar a capacidade de pagamento de um cliente.

(e) Financiamento de Recebíveis e Garantias.

A Companhia fornece acordos financeiros, incluindo arrendamentos, contratos de serviços financiados e empréstimos, para que determinados clientes qualificados construam, mantenham e atualizem suas redes. Os recebíveis de arrendamentos representam basicamente arrendamentos de tipo de venda e de financiamento direto. Arrendamentos e empréstimos normalmente têm prazos de dois a três anos e geralmente são garantidos por uma garantia mobiliária nos ativos subjacentes. A Companhia mantém uma provisão para recebíveis de financiamento incobráveis ​​com base em vários fatores, incluindo a classificação de risco da carteira, condições macroeconômicas, experiência histórica e outros fatores de mercado. A Companhia também fornece garantias de financiamento, que geralmente são para vários acordos de financiamento de terceiros para canalizar parceiros e outros clientes. A Companhia poderia ser chamada para efetuar o pagamento sob essas garantias em caso de não pagamento a terceiros. Veja a Nota 6.

(f) Depreciação e Amortização.

O imobilizado é registrado ao custo, menos depreciação e amortização acumuladas. A depreciação e a amortização são calculadas pelo método linear durante os seguintes períodos:

(g) Ágio e ativos intangíveis adquiridos.

O ágio é testado para perda de valor anualmente e durante o período entre os testes anuais em determinadas circunstâncias, e baixado quando prejudicado. Com base nos testes de deterioração realizados, não houve redução no valor do ágio no exercício social de 2008, 2007 ou 2006. Os ativos intangíveis adquiridos, exceto o ágio, são amortizados ao longo de suas vidas úteis, a menos que essas vidas sejam consideradas indefinidas. Os ativos intangíveis adquiridos são registrados ao custo, deduzido da amortização acumulada. A amortização é calculada ao longo da vida útil estimada dos respectivos ativos, geralmente de dois a sete anos.

(h) Imparidade de Activos de Vida Longa.

Ativos de vida longa e certos ativos intangíveis identificáveis ​​a serem mantidos e utilizados são revisados ​​para a verificação de impairment sempre que eventos ou mudanças nas circunstâncias indicarem que o valor contábil de tais ativos pode não ser recuperável. A determinação da recuperabilidade de ativos de longa duração é baseada em uma estimativa de fluxos de caixa futuros não descontados resultante do uso do ativo e sua disposição final. A mensuração de uma perda por redução ao valor recuperável para ativos de longa duração e certos ativos intangíveis identificáveis ​​que a administração espera deter e usar se baseia no valor justo do ativo. Ativos de vida longa e certos ativos intangíveis identificáveis ​​a serem alienados são registrados pelo menor valor entre o valor contábil e o valor justo menos custos de venda.

(i) Instrumentos Derivativos.

A Companhia reconhece instrumentos derivativos como ativos ou passivos e mensura esses instrumentos ao valor justo. A contabilização de mudanças no valor justo de um derivativo depende do uso pretendido do derivativo e da designação resultante. Para um instrumento derivativo designado como hedge de valor justo, o ganho ou a perda é reconhecido no resultado no período da mudança juntamente com a perda ou ganho compensatório sobre o item coberto atribuído ao risco que está sendo protegido. Para um instrumento derivativo designado como hedge de fluxo de caixa, a parcela efetiva do ganho ou perda do derivativo é inicialmente reportada como um componente de outros resultados abrangentes acumulados e subseqüentemente reclassificada no resultado quando a exposição protegida afeta os resultados. A parte ineficaz do ganho ou perda é reportada nos lucros imediatamente. Para instrumentos derivativos que não são designados como hedge contábil, mudanças no valor justo são reconhecidas no resultado no período da mudança.

(j) Valor Justo de Instrumentos Financeiros.

O valor justo de determinados instrumentos financeiros da Companhia, incluindo caixa e equivalentes de caixa, remuneração acumulada e outros passivos circulantes, aproxima-se do valor contábil por causa de seus vencimentos curtos. Além disso, o valor justo dos recebíveis de empréstimos da Companhia e os contratos de serviços financiados também se aproximam do valor contábil. Os valores justos dos investimentos de renda fixa, dos títulos patrimoniais de capital aberto e da dívida de longo prazo da Companhia são determinados utilizando preços cotados no mercado para esses títulos ou instrumentos financeiros similares.

(k) Participação Minoritária.

A Companhia consolida seu investimento em um fundo de capital de risco administrado pela SOFTBANK Corp. e suas afiliadas (& SO SOFTBANK & rdquo;). Em 26 de julho de 2008, a participação minoritária de US $ 49 milhões representa a participação do SOFTBANK no fundo de capital de risco.

(l) Conversão de moeda estrangeira.

Ativos e passivos de subsidiárias estrangeiras que operam em moeda nacional, onde a moeda nacional é a moeda funcional, são convertidos para dólares norte-americanos pelas taxas de câmbio em vigor na data do balanço, com os ajustes de conversão resultantes registrados diretamente em uma moeda. componente separado do outro rendimento integral acumulado. As contas de receita e despesa são convertidas pelas taxas de câmbio médias durante o ano. Os ajustes de remensuração são registrados em outros resultados, líquidos.

(m) Concentrações de Risco.

Caixa e equivalentes de caixa são mantidos em diversas instituições financeiras. Depósitos mantidos com bancos podem exceder o valor do seguro fornecido sobre tais depósitos. Geralmente, esses depósitos podem ser resgatados sob demanda e são mantidos com instituições financeiras com crédito de boa reputação e, portanto, possuem risco de crédito mínimo. A Companhia busca mitigar esses riscos, distribuindo seu risco por várias contrapartes e monitorando os perfis de risco dessas contrapartes.

A Companhia realiza avaliações de crédito contínuas de seus clientes e, com exceção de certas transações de financiamento, não exige garantia de seus clientes. Os clientes da empresa estão principalmente nos mercados corporativo, de prestação de serviços e comercial. A Companhia recebe alguns de seus componentes de fornecedores exclusivos. Além disso, a empresa conta com um número limitado de fabricantes e fornecedores contratados para fornecer serviços de fabricação para seus produtos. A incapacidade de um fabricante ou fornecedor contratado para atender aos requisitos de suprimento da Companhia poderia afetar materialmente os resultados operacionais futuros.

(n) Reconhecimento de receita.

Os produtos da empresa geralmente são integrados com software essencial para a funcionalidade do equipamento. Além disso, a Companhia fornece atualizações e aprimoramentos de software não especificados relacionados ao equipamento por meio de seus contratos de manutenção para a maioria de seus produtos. Assim, a Empresa contabiliza a receita de acordo com a Declaração de Posição No. 97-2, "Software Revenue Recognition", & rdquo; e todas as interpretações relacionadas. Para as vendas de produtos onde o software é incidental ao equipamento, ou em acordos de hospedagem, a Empresa aplica as disposições do Boletim de Contabilidade do Pessoal No. 104, "Reconhecimento de Receitas", & nbsp; e todas as interpretações relacionadas.

A Companhia reconhece a receita quando há evidência persuasiva de um acordo, a entrega ocorreu, a taxa é fixa ou determinável e a cobrança é razoavelmente assegurada. Nos casos em que a aceitação final do produto, sistema ou solução é especificada pelo cliente, a receita é diferida até que todos os critérios de aceitação tenham sido atendidos. A receita de serviços de suporte técnico é diferida e reconhecida proporcionalmente ao longo do período durante o qual os serviços serão executados, o que normalmente é de um a três anos. A receita de serviços avançados é reconhecida no momento da entrega ou da conclusão do desempenho.

Quando uma venda envolve vários elementos, como vendas de produtos que incluem serviços, toda a taxa do contrato é alocada para cada elemento respectivo com base no valor justo relativo e reconhecida quando os critérios de reconhecimento de receita para cada elemento são atendidos. O valor justo de cada elemento é estabelecido com base no preço de venda cobrado quando o mesmo elemento é vendido separadamente.

A empresa usa distribuidores que armazenam estoques e geralmente vendem para integradores de sistemas, provedores de serviços e outros revendedores. Além disso, certos produtos são vendidos através de parceiros varejistas. A Companhia refere-se a essas vendas através de distribuidores e parceiros de varejo como seu sistema de vendas de dois níveis para o cliente final. A receita de distribuidores e parceiros de varejo é reconhecida com base em um método de venda por meio de informações fornecidas por eles. Distribuidores e parceiros varejistas participam de vários programas de marketing cooperativo e outros, e a Companhia mantém provisões e provisões estimadas para esses programas. A Empresa acumula custos de garantia, devoluções de vendas e outras licenças com base em sua experiência histórica.

(o) Custos de Publicidade.

A Companhia contabiliza todos os custos de publicidade quando incorridos. Os custos de publicidade não foram significativos para todos os anos apresentados.

(p) Despesa de Remuneração Baseada em Ações.

O SFAS 123 requer a mensuração e reconhecimento de despesas de remuneração para todos os prêmios de pagamento baseados em ações concedidos a funcionários e diretores, incluindo opções de ações de funcionários e compras de ações de funcionários relacionadas ao Plano de Compra de Ações do Funcionário ("direitos de compra de ações"). sobre os valores justos estimados. O SFAS 123 (R) exige que as empresas estipulem o valor justo dos prêmios de pagamento baseado em ações na data da concessão, usando um modelo de precificação de opções. O valor dos prêmios que, em última instância, devem ser investidos é reconhecido como despesa durante os períodos de serviço exigidos nas Declarações de Operações Consolidadas da Companhia.

Despesas com remuneração com base em ações reconhecidas nas Demonstrações de Operações Consolidadas da Companhia para todos os exercícios apresentados incluíram despesas de remuneração de benefícios baseados em ações concedidas antes, mas ainda não adquiridas em 30 de julho de 2005 com base na data da concessão. estimados de acordo com as provisões pro forma do SFAS 123, e despesas de remuneração para os prêmios de pagamento baseado em ações concedidos após 30 de julho de 2005 com base na data de concessão estimados de acordo com as disposições do SFAS 123 (R). Em conjunto com a adoção do SFAS 123 (R) no início do exercício fiscal de 2006, a Companhia alterou seu método de atribuir o valor da remuneração baseada em ações às despesas da abordagem de opção múltipla acelerada ao método de opção única linear . Despesas de remuneração para todos os prêmios de pagamento baseados em ações concedidos até 30 de julho de 2005 continuarão a ser reconhecidos usando a abordagem de opção múltipla acelerada, enquanto as despesas de remuneração para todos os prêmios de pagamento baseado em ações concedidas após 30 de julho de 2005 são reconhecidas usando o método de opção única de linha reta. Como a despesa de compensação baseada em ações reconhecida nas Demonstrações Consolidadas de Operações é baseada em prêmios que devem ser adquiridos, ela foi reduzida por confiscos.

Após a adoção do SFAS 123 (R), a Companhia também alterou seu método de avaliação para prêmios baseados em ações concedidos a partir do ano fiscal de 2006 para um modelo binômio de precificação de opções (modelo lattice-binomial) do Black-Scholes. modelo de precificação de opções ("modelo Black-Scholes") anteriormente utilizado para as informações pro forma da Companhia exigidas pelo SFAS 123. A determinação do valor justo dos prêmios de pagamento baseado em ações na data de concessão usando um modelo de precificação de opções é afetado pelo preço da ação da empresa, bem como pelas suposições relativas a um número de variáveis ​​altamente complexas e subjetivas. Essas variáveis ​​incluem, mas não se limitam a, a volatilidade esperada do preço da ação da Companhia durante o prazo dos prêmios e os comportamentos dos exercícios de opções de ações de funcionários reais e projetados. Os modelos de precificação de opções foram desenvolvidos para uso na estimativa do valor das opções negociadas que não possuem restrições de vesting ou hedge e são totalmente transferíveis. Como as opções de ações da empresa têm certas características que são significativamente diferentes das opções negociadas e como as mudanças nas premissas subjetivas podem afetar materialmente o valor estimado, na opinião da administração, os modelos de avaliação existentes podem não fornecer uma medida precisa da valor justo das opções de ações para empregados da Companhia. Embora o valor justo das opções de compra de ações seja determinado de acordo com o SFAS 123 (R) e SAB 107 usando um modelo de precificação de opções, esse valor pode não ser indicativo do valor justo observado em uma transação de compra / venda voluntária.

A Companhia optou por aplicar o método de transição alternativo fornecido na Posição do Quadro de Funcionários do FASB No. FAS 123 (R) -3 'Eleição de Transição Relacionada à Contabilização dos Efeitos Fiscais dos Prêmios de Pagamento Baseado em Ações'. para cálculo dos efeitos fiscais da remuneração baseada em ações de acordo com o SFAS 123 (R). O método de transição alternativa inclui métodos simplificados para estabelecer o saldo inicial do pool de capital integralizado adicional (& quot; pool APIC & quot;) relacionado aos efeitos fiscais da remuneração baseada em ações de funcionários e para determinar o impacto subsequente no pool APIC e Demonstrações Consolidadas dos Fluxos de Caixa dos efeitos fiscais dos prêmios de compensação baseados em ações de funcionários que estão em circulação após a adoção do SFAS 123 (R).

(q) Custos de desenvolvimento de software.

Os custos de desenvolvimento de software precisam ser capitalizados de acordo com a Declaração de Padrões Contábeis Financeiros No. 86, "Contabilização dos Custos do Software de Computador a Serem Vendidos, Alugados ou de Qualquer Outra Forma Comercializados", & rdquo; não foram materiais até o momento. Custos de desenvolvimento de software para uso interno que devem ser capitalizados de acordo com a Declaração de Posição No. 98-1, "Contabilização dos Custos de Software de Computador Desenvolvido ou Obtido para Uso Interno", & rdquo; também não foram materiais até o momento.

(r) Imposto de Renda.

A despesa de imposto de renda é baseada na receita contábil financeira antes dos impostos. Impostos diferidos ativos e passivos são reconhecidos para os efeitos fiscais esperados de diferenças temporárias entre as bases fiscais de ativos e passivos e seus valores reportados. As provisões de avaliação são registradas para reduzir os ativos fiscais diferidos até o montante que será mais provável do que não ser realizado.

Em 29 de julho de 2007, a Companhia adotou o FIN 48, que é uma mudança na contabilização do imposto de renda. O FIN 48 contém uma abordagem em duas etapas para reconhecer e mensurar as posições fiscais incertas contabilizadas de acordo com o SFAS 109. O primeiro passo é avaliar a posição fiscal para reconhecimento determinando se o peso da evidência disponível indica que é mais provável que não. que a posição será mantida na auditoria, incluindo a resolução de recursos relacionados ou processos de litígio, se houver. O segundo passo é mensurar o benefício fiscal como o maior valor que tem mais de 50% de probabilidade de ser realizado no momento da liquidação. A Companhia classificará o passivo por benefícios fiscais não reconhecidos como circulante na medida em que a Companhia antecipar o pagamento (ou recebimento) de caixa no prazo de um ano. Os juros e multas relacionados a posições fiscais incertas são reconhecidos na provisão para imposto de renda. Veja a Nota 13.

(s) Cálculo do Lucro Líquido por Ação.

O lucro líquido básico por ação é calculado utilizando o número médio ponderado de ações ordinárias em circulação durante o período. O lucro líquido diluído por ação é calculado utilizando a média ponderada de ações ordinárias e ações ordinárias potenciais diluidoras em circulação durante o período. As ações ordinárias potenciais diluidoras consistem principalmente em opções de ações para funcionários, ações restritas e unidades de estoque restritas.

Declaração de Padrões Contábeis Financeiros (SFAS) No. 128, & ldquo; Lucro por ação, & rdquo; exige que as opções de ações de capital de funcionários, ações não investidas e instrumentos de patrimônio semelhantes concedidos pela Companhia sejam tratados como ações ordinárias em circulação no cálculo do lucro diluído por ação. As ações diluídas incluem o efeito dilutivo das opções dentro do dinheiro, que é calculado com base no preço médio da ação para cada período fiscal, usando o método de ações em tesouraria. Segundo o método de ações em tesouraria, o valor que o empregado deve pagar pelo exercício das opções, o valor do custo da remuneração para serviços futuros que a Companhia ainda não reconheceu e o valor dos benefícios fiscais que seriam registrados no capital adicional quando o prêmio se torna dedutível é assumido para ser usado para recomprar ações.

(t) Consolidação de Entidades de Interesse Variável.

O Financial Accounting Standards Board (FASB) emitiu a Interpretação No. 46 do FASB, “Consolidação de entidades de interesse variável”. (“FIN 46”), em janeiro de 2003. A FIN 46 exige que, se uma entidade for a principal beneficiária de uma entidade de participação variável, os ativos, passivos e resultados das operações da entidade de participação variável devem ser incluídos nas demonstrações contábeis consolidadas. declarações da entidade. Interpretação do FASB No. 46 (R), “Consolidação de Entidades de Interesse Variável” (“FIN 46 (R)”), foi emitida em dezembro de 2003. A Companhia adotou o FIN 46 (R) em 24 de janeiro de 2004. Para informações adicionais sobre entidades de participação variável, veja a Nota 10.

(u) Uso de Estimativas.

A preparação de demonstrações financeiras e divulgações relacionadas em conformidade com os princípios contábeis geralmente aceitos nos Estados Unidos exige que a administração faça estimativas e julgamentos que afetam os valores reportados nas Demonstrações Contábeis Consolidadas e notas explicativas. As estimativas são usadas para o seguinte, entre outras:

Reconhecimento de receita Provisão para créditos de liquidação duvidosa e devoluções de vendas Valorização de estoque e responsabilidade por compromissos de compra com fabricantes e fornecedores contratados Custos de garantia Despesas de compensação com base em ações Imparidades de investimento Imparidades de valor justo Imposto de renda Contingências de perdas.

Os resultados reais experimentados pela Companhia podem diferir materialmente das estimativas da administração.

(v) Pronunciamentos Contábeis Recentes.

Em setembro de 2006, o FASB emitiu o SFAS No. 157, “Fair Value Measurements & rdquo; (& SFFS 157 & rdquo;). O SFAS 157 define valor justo, estabelece uma estrutura para mensurar o valor justo e aprimora a divulgação da mensuração do valor justo. Em fevereiro de 2008, o FASB emitiu a Posição de Funcionários do FASB ("FSP") 157-1, "Aplicação do SFAS No. 157 à Declaração do FASB No. 13 e Outros Pronunciamentos Contábeis que Abordam as Mensurações do Valor Justo para Fins de Classificação do Arrendamento ou Medição sob a Declaração 13 & rdquo; ("FSP 157-1") e FSP 157-2, "Data Efetiva da Declaração do FASB No. 157". (& ldquo; FSP 157-2 & rdquo;). O FSP 157-1 altera o SFAS 157 para remover determinadas transações de leasing de seu escopo. O FSP 157-2 atrasa a data de vigência do SFAS 157 para todos os ativos não financeiros e passivos não financeiros, exceto itens reconhecidos ou divulgados a valor justo nas demonstrações financeiras em bases recorrentes (pelo menos anualmente), até o início do primeiro exercício. trimestre fiscal de 2010. As exigências de mensuração e divulgação relacionadas a ativos financeiros e passivos financeiros são efetivas para a Companhia no primeiro trimestre do ano fiscal de 2009. A adoção do SFAS 157 para ativos financeiros e passivos financeiros não deverá ter um impacto resultados de operações ou posição financeira da Companhia. A Companhia está atualmente avaliando o impacto que o SFAS 157 terá em seus resultados operacionais e posição financeira quando aplicado a ativos não financeiros e passivos não financeiros a partir do primeiro trimestre do ano fiscal de 2010.

Em fevereiro de 2007, o FASB emitiu o SFAS no. 159, "A Opção do Valor Justo para Ativos Financeiros e Passivos Financeiros", incluindo uma emenda do Pronunciamento FASB No. 115 & rdquo; (& ldquo; SFAS 159 & rdquo;). O SFAS 159 deve expandir o uso da contabilização do valor justo, mas não afeta os padrões existentes que exigem que certos ativos ou passivos sejam contabilizados pelo valor justo. O objetivo do SFAS 159 é aperfeiçoar os relatórios financeiros, oferecendo às empresas a oportunidade de mitigar a volatilidade nos lucros reportados causada pela medição de ativos e passivos relacionados de forma diferente, sem a necessidade de aplicar provisões contábeis de hedge complexas. De acordo com a SFAS 159, uma companhia pode escolher, em datas de eleição especificadas, mensurar itens elegíveis a valor justo e reportar ganhos e perdas não realizados em itens para os quais a opção de valor justo tenha sido eleita em lucros a cada data subsequente. O SFAS 159 é efetivo para a Companhia no primeiro trimestre do ano fiscal de 2009, e não se espera que tenha um impacto material nos resultados operacionais ou na posição financeira da Companhia.

SFAS 141 (R) e SFAS 160.

Em dezembro de 2007, o FASB emitiu o SFAS No. 141 (revisado em 2007), “Business Combinations & rdquo; (& ldquo; SFAS 141 (R) & rdquo;) e SFAS nº 160, & rdquo; Participações Não Controladas em Demonstrações Financeiras Consolidadas & mdash; uma alteração do ARB No. 51 & rdquo; (& ldquo; SFAS 160 & rdquo;). O SFAS 141 (R) mudará significativamente as práticas atuais em relação às combinações de negócios. Entre as mudanças mais significativas, o SFAS 141 (R) expande a definição de um negócio e uma combinação de negócios; exige que o adquirente reconheça os ativos adquiridos, os passivos assumidos e os interesses que não controlam (incluindo o ágio), mensurados pelo valor justo na data da aquisição; exige que as despesas relacionadas à aquisição e os custos de reestruturação sejam reconhecidos separadamente da combinação de negócios; exige que os ativos adquiridos e passivos assumidos de contingências contratuais e não contratuais sejam reconhecidos pelos valores justos na data de aquisição com alterações subsequentes reconhecidas no resultado; e requer que a pesquisa e desenvolvimento em processo sejam capitalizados pelo valor justo como um ativo intangível de vida indefinida. O SFAS 160 mudará a contabilidade e os relatórios para interesses minoritários, informando-os como patrimônio separado do patrimônio da entidade controladora, bem como exigindo divulgações ampliadas. O SFAS 141 (R) e o SFAS 160 são efetivos para demonstrações contábeis emitidas para exercícios fiscais iniciados após 15 de dezembro de 2008. A Companhia está atualmente avaliando o impacto do SFAS 141 (R) e do SFAS 160 em seus resultados operacionais e posição financeira. .

Em março de 2008, o FASB emitiu o SFAS No. 161, “Divulgações sobre Instrumentos Derivativos e Atividades de Hedge, uma emenda ao SFAS No. 133”. (& ldquo; SFAS 161 & gt;), que requer divulgações adicionais sobre os objetivos do uso de instrumentos derivativos; o método pelo qual os instrumentos derivativos e os itens com hedge relacionados são contabilizados de acordo com a Declaração FASB No.133 e suas interpretações relacionadas; e o efeito de instrumentos derivativos e itens protegidos relacionados na posição financeira, desempenho financeiro e fluxos de caixa. O SFAS 161 também exige a divulgação dos valores justos dos instrumentos derivativos e seus ganhos e perdas em um formato tabular. O SFAS 161 é efetivo para demonstrações financeiras emitidas para exercícios fiscais e períodos intermediários iniciados após 15 de novembro de 2008, com adoção antecipada incentivada. A Companhia está atualmente avaliando o impacto que a adoção do SFAS 161 terá nas suas divulgações das demonstrações contábeis.

(w) Reclassificações.

Certas reclassificações foram feitas nos saldos do ano anterior para estar em conformidade com a apresentação do ano atual.

3. Combinações de Negócios.

(a) Aquisições de compra.

Sob os termos dos contratos definitivos relacionados às aquisições de aquisições e aquisições de ativos da Companhia concluídas durante o exercício fiscal de 2008, 2007 e 2006, a remuneração de compra consistia em um ou mais em dinheiro, ações ordinárias da Cisco e opções de ações totalmente adquiridas. assumido.

Um resumo das aquisições de compra e aquisições de ativos concluídas no ano fiscal de 2008, 2007 e 2006 é o seguinte (em milhões):

A contraprestação de compra para aquisições de aquisições da Companhia e aquisições de ativos também é alocada aos ativos tangíveis adquiridos e passivos assumidos.

Fiscal 2008.

A empresa adquiriu a Navini Networks, Inc. para ampliar as soluções WiMAX da empresa para provedores de serviços. A empresa adquiriu a Securent, Inc. para permitir que a empresa oferecesse a seus clientes corporativos soluções de software de gerenciamento de políticas, projetadas para permitir às empresas administrar, fiscalizar e auditar o acesso a dados, comunicações e aplicativos em diferentes tipos de tecnologia da informação. ) ambientes.

Fiscal 2007.

A empresa adquiriu a Arroyo Video Solutions, Inc. para permitir que as operadoras acelerassem a criação e a distribuição de serviços de entretenimento, mídia interativa e publicidade distribuídos pela rede em todo o crescente portfólio de televisores, computadores pessoais e telefones celulares. A empresa adquiriu a IronPort Systems, Inc. para estender o portfólio de segurança da empresa em soluções de segurança de e-mail e mensagens. The Company acquired Reactivity, Inc. to complement and extend the Company’s application networking services portfolio within advanced technologies. The Company acquired WebEx Communications, Inc., a provider of on-demand collaboration applications. WebEx’s network-based solution for delivering business-to-business collaboration extends the Company’s unified communications portfolio, particularly within the small and medium-sized business (SMB) market.

Fiscal 2006.

The Company acquired KiSS Technology A/S to develop networked entertainment products for the consumer. The Company acquired Scientific-Atlanta, Inc. to create an end-to-end solution for carrier networks and the digital home and deliver large-scale video systems to extend Cisco’s commitment to and leadership in the service provider market. The Company acquired Sheer Networks, Inc. to provide technology that is designed to adapt to network changes, scale to large networks, and help extend new technologies and services that simplify the task of monitoring and maintaining complex networks.

The Consolidated Financial Statements include the operating results of each business from the date of acquisition. Pro forma results of operations for the acquisitions other than Scientific-Atlanta completed during fiscal 2008, 2007, and 2006 have not been presented because the effects of the acquisitions, individually or in the aggregate, were not material to the Company’s financial results. The pro forma results of Scientific-Atlanta are presented below.

(b) Acquisition of Scientific-Atlanta, Inc.

On February 24, 2006, Cisco completed the acquisition of Scientific-Atlanta, Inc., a provider of set-top boxes, end-to-end video distribution networks, and video integration systems. The financial information in the table below summarizes the combined results of operations of Cisco and Scientific-Atlanta, on a pro forma basis, as though the companies had been combined as of the beginning of fiscal 2006. The unaudited pro forma financial information combines the historical results of operations of Cisco for fiscal 2006, which include the results of operations of Scientific-Atlanta subsequent to February 24, 2006, and the historical results of operations of Scientific-Atlanta for the six months ended December 30, 2005 and the month ended February 24, 2006.

This information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition of Scientific-Atlanta and issuance of $6.5 billion of debt (see Note 8) had taken place at the beginning of fiscal 2006. The debt was issued to finance the acquisition of Scientific-Atlanta as well as for general corporate purposes. For the purposes of this pro forma financial information, the interest expense on the entire debt, including the effects of hedging, were included in the pro forma financial adjustments. The pro forma financial information also included incremental share-based compensation expense due to the acceleration of Scientific-Atlanta employee stock options prior to the acquisition date, investment banking fees, and other acquisition-related costs, recorded in Scientific-Atlanta’s historical results of operations during February 2006. In addition, the pro forma financial information also included the purchase accounting adjustments on historical Scientific-Atlanta inventory, adjustments to depreciation on acquired property and equipment, a charge for in-process research and development, amortization charges from acquired intangible assets, adjustments to interest income, and related tax effects.

The following table summarizes the pro forma financial information (in millions, except per-share amounts):

(c) Compensation Expense Related to Acquisitions and Investments.

The following table presents the compensation expense related to acquisitions and investments (in millions):

Share-Based Compensation Expense.

Beginning in fiscal 2006, share-based compensation related to acquisitions and investments is measured under SFAS 123(R) and includes deferred share-based compensation relating to acquisitions completed prior to fiscal 2006. As of July 26, 2008, the remaining balance of share-based compensation related to acquisitions and investments to be recognized over the vesting periods was $245 million.

Cash Compensation Expense.

In connection with the Company’s purchase acquisitions, asset purchases, and acquisitions of variable interest entities, the Company has agreed to pay certain additional amounts contingent upon the achievement of certain agreed-upon technology, development, product, or other milestones, or the continued employment with the Company of certain employees of the acquired entities. In each case, any additional amounts paid will be recorded as compensation expense. As of July 26, 2008, the Company may be required to recognize future compensation expense pursuant to these agreements of up to $558 million, including the remaining potential amount of additional compensation expense related to Nuova Systems, Inc., as discussed below.

Nuova Systems, Inc.

During fiscal 2008, the Company purchased the remaining interests in Nuova Systems, Inc. not previously held by the Company, representing approximately 20% of Nuova Systems. Under the terms of the merger agreement, the former minority interest holders of Nuova Systems are eligible to receive up to three milestone payments based on agreed-upon formulas. As a result, during 2008 the Company recorded compensation expense of $277 million related to the fair value of amounts that are expected to be earned by the minority interest holders pursuant to a vesting schedule. Actual amounts payable to the former minority interest holders of Nuova Systems will depend upon achievement under the agreed-upon formulas.

Subsequent changes to the fair value of the amounts probable of being earned and the continued vesting will result in adjustments to the recorded compensation expense. The potential amount that could be recorded as compensation expense may be up to a maximum of $678 million, including the amount that has been expensed as of the end of fiscal 2008. The compensation is expected to be paid during fiscal 2010 through fiscal 2012.

4. Goodwill and Purchased Intangible Assets.

(a) Goodwill.

The following tables present the changes in goodwill allocated to the Company’s reportable segments during fiscal 2008 and 2007 (in millions):

In the table above, “Other” primarily includes foreign currency translation and purchase accounting adjustments.

(b) Purchased Intangible Assets.

The following tables present details of the purchased intangible assets acquired through acquisitions during fiscal 2008 and 2007 (in millions, except years):

The following tables present details of the Company’s purchased intangible assets (in millions):

(1) The technology category for the year ended July 26, 2008 includes technology intangible assets acquired through business combinations as well as technology licenses.

The following table presents the amortization of purchased intangible assets (in millions):

During the years ended July 26, 2008 and July 29, 2006, the Company recorded impairment charges of $33 million and $69 million, respectively, from write-downs of purchased intangible assets primarily related to certain technology and customer relationships due to reductions in expected future cash flows, and the amounts were recorded as amortization of purchased intangible assets.

The estimated future amortization expense of purchased intangible assets as of July 26, 2008, is as follows (in millions):

5. Balance Sheet Details.

The following tables provide details of selected balance sheet items (in millions):

6. Financing Receivables and Guarantees.

(a) Lease Receivables.

Lease receivables represent sales-type and direct-financing leases resulting from the sale of the Company’s and complementary third-party products. These lease arrangements typically have terms from two to three years and are generally collateralized by a security interest in the underlying assets. The net lease receivables are summarized as follows (in millions):

Contractual maturities of the gross lease receivables at July 26, 2008 were $655 million in fiscal 2009, $514 million in fiscal 2010, $328 million in fiscal 2011, $160 million in fiscal 2012, and $73 million in fiscal 2013 and thereafter. Actual cash collections may differ from the contractual maturities due to early customer buyouts, refinancings, or defaults.

(b) Financed Service Contracts.

Financed service contracts are summarized as follows (in millions):

The revenue related to financed service contracts, which primarily relates to technical support services, is deferred and included in deferred service revenue. The revenue is recognized ratably over the period during which the related services are to be performed, which is typically from one to three years.

(c) Loan Receivables.

Loan receivables are summarized as follows (in millions):

A portion of the revenue related to loan receivables is deferred and included in deferred product revenue based on revenue recognition criteria.

(d) Financing Guarantees.

The Company provides financing guarantees, which are generally for various third-party financing arrangements extended to channel partners and other customers. The Company could be called upon to make payment under these guarantees in the event of nonpayment to the third party. As of July 26, 2008, the total maximum potential future payments related to these guarantees was approximately $830 million, of which approximately $610 million was recorded as deferred revenue on the consolidated balance sheet in accordance with revenue recognition policies and FIN 45.

7. Investments.

(a) Summary of Investments.

The following tables summarize the Company’s investments (in millions):

(b) Gains and Losses on Investments.

The following table presents gross realized gains and losses related to the Company’s investments (in millions):

The following tables present the breakdown of the investments with unrealized losses at July 26, 2008 and July 28, 2007 (in millions):

The gross unrealized losses related to fixed income securities as of July 26, 2008 were primarily due to changes in interest rates and credit market conditions. The gross unrealized losses related to publicly traded equity securities as of July 26, 2008 were due to changes in market prices. The Company’s management has determined that the gross unrealized losses on its investment securities at July 26, 2008 are temporary in nature. The Company reviews its investments to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. Substantially all of the Company’s fixed income securities are rated investment grade.

(c) Maturities of Fixed Income Securities.

The following table summarizes the maturities of the Company’s fixed income securities at July 26, 2008 (in millions):

Actual maturities may differ from the contractual maturities because borrowers may have the right to call or prepay certain obligations.

8. Borrowings.

(a) Long-Term Debt.

In February 2006, the Company issued $500 million of senior floating interest rate notes based on LIBOR due 2009 (the “2009 Notes”), $3.0 billion of 5.25% senior notes due 2011 (the “2011 Notes”), and $3.0 billion of 5.50% senior notes due 2016 (the “2016 Notes”), for an aggregate principal amount of $6.5 billion. The following table summarizes the Company’s long-term debt (in millions, except percentages):

Upon termination during fiscal 2008 of the interest rate swaps entered into in connection with the 2011 Notes and the 2016 Notes, the Company received proceeds of $432 million, net of accrued interest, which was recorded as a hedge accounting adjustment of the carrying amount of the fixed-rate debt and which is being amortized as a reduction to interest expense over the remaining terms of the fixed-rate notes. The effective rates for the 2011 Notes and the 2016 Notes as of July 26, 2008 include the fixed rate interest on the notes, the amortization of the hedge accounting adjustment and the accretion of the discount. The effective rates for the 2011 Notes and the 2016 Notes as of July 28, 2007 included the variable rate in effect as of the period end on the interest rate swaps and the accretion of the discount.

The 2011 Notes and the 2016 Notes are redeemable by the Company at any time, subject to a make-whole premium. During fiscal 2008, the Company reclassified the 2009 Notes to the current portion of long-term debt. Based on market prices, the fair value of the Company’s long-term debt, including the current portion of long-term debt, was $6.6 billion as of July 26, 2008. The Company was in compliance with all debt covenants as of July 26, 2008.

Interest is payable quarterly on the 2009 Notes and semi-annually on the 2011 Notes and 2016 Notes. Interest expense and cash paid for interest are summarized as follows (in millions):

(b) Credit Facility.

In August 2007 the Company entered into a credit agreement with certain institutional lenders that provides for a $3.0 billion unsecured revolving credit facility that is scheduled to expire on August 17, 2012. Any advances under the credit agreement will accrue interest at rates that are equal to, based on certain conditions, either (i) the higher of the Federal Funds rate plus 0.50% or Bank of America’s “prime rate” as announced from time to time, or (ii) LIBOR plus a margin that is based on the Company’s senior debt credit ratings as published by Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc. The credit agreement requires that the Company maintain an interest coverage ratio as defined in the agreement. As of July 26, 2008, the Company was in compliance with the required interest coverage ratio and the Company had not borrowed any funds under the credit facility. The Company may also, upon the agreement of either the then existing lenders or of additional lenders not currently parties to the agreement, increase the commitments under the credit facility up to a total of $5.0 billion and/or extend the expiration date of the credit facility up to August 15, 2014.

9. Derivative Instruments.

The Company uses derivative instruments primarily to manage exposures to foreign currency, interest rate, and equity security price risks. The Company’s primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency, interest rates, and equity security prices. The Company’s derivatives expose it to credit risk to the extent that the counterparties may be unable to meet the terms of the agreement. The Company seeks to mitigate such risks by limiting its counterparties to major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored. Management does not expect material losses as a result of defaults by counterparties.

(a) Foreign Currency Derivatives.

The Company’s foreign exchange forward and option contracts are summarized as follows (in millions):

The Company conducts business globally in numerous currencies. As such, it is exposed to adverse movements in foreign currency exchange rates. To limit the exposure related to foreign currency changes, the Company enters into foreign currency contracts. The Company does not enter into foreign exchange forward or option contracts for trading purposes.

The Company enters into foreign exchange forward contracts to reduce the short-term effects of foreign currency fluctuations on assets and liabilities such as foreign currency receivables, including long-term customer financings, investments, and payables. Gains and losses on the contracts are included in other income (loss), net, and offset foreign exchange gains and losses from the revaluation of intercompany balances or other current assets, investments, or liabilities denominated in currencies other than the functional currency of the reporting entity. The Company’s foreign exchange forward contracts related to current assets and liabilities generally range from one to three months in original maturity. Additionally, the Company has entered into foreign exchange forward contracts with maturities of up to two years related to long-term customer financings. The foreign exchange forward contracts related to investments generally have maturities of less than two years. The Company also hedges certain net investments in its foreign subsidiaries with forward contracts which generally have maturities of less than six months.

The Company hedges certain foreign currency forecasted transactions related to certain operating expenses with currency options and forward contracts. These currency option and forward contracts generally have maturities of less than 18 months and these transactions are designated as cash flow hedges. The effective portion of the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income and subsequently reclassified into earnings when the hedged exposure affects earnings. The ineffective portion, if any, of the gain or loss is reported in earnings immediately. During fiscal 2008, 2007, and 2006, there were no significant gains or losses recognized in earnings for hedge ineffectiveness. The Company did not discontinue any hedges during any of the years presented because it was probable that the original forecasted transactions would not occur.

(b) Interest Rate Derivatives.

The Company’s interest rate derivatives are summarized as follows (in millions):

The Company’s primary objective for holding fixed income securities is to achieve an appropriate investment return consistent with preserving principal and managing risk. To realize these objectives, the Company may utilize interest rate swaps or other derivatives designated as fair value or cash flow hedges.

Interest Rate Swaps, Investments.

The Company is currently a party to $1.0 billion of interest rate swaps designated as fair value hedges of its investment portfolio. Under these interest rate swap contracts, the Company makes fixed-rate interest payments and receives interest payments based on LIBOR. The effect of these swaps is to convert fixed-rate returns to floating-rate returns based on LIBOR for a portion of the Company’s fixed income portfolio. The gains and losses related to changes in the value of the interest rate swaps are included in other income (loss), net, and offset the changes in fair value of the underlying hedged investment. The fair values of the interest rate swaps designated as hedges of the Company’s investments are reflected in prepaid expenses and other current assets or other current liabilities.

Interest Rate Swaps, Long-Term Debt.

In conjunction with its issuance of fixed-rate senior notes in February 2006, the Company entered into $6.0 billion of interest rate swaps designated as fair value hedges of the fixed-rate debt. The effect of these swaps was to convert fixed-rate interest expense to floating-rate interest expense based on LIBOR. During fiscal 2008, the Company terminated the $6.0 billion of interest rate swaps and received proceeds of $432 million, net of accrued interest, which was recorded as a hedge accounting adjustment of the carrying amount of the fixed-rate debt and is amortized as a reduction to interest expense over the remaining terms of the fixed-rate notes. While such interest rate swaps were in effect, their fair values were reflected in other assets or other long-term liabilities and the gains and losses related to changes in the value of such interest rate swaps were included in other income (loss), net, and offset the changes in fair value of the underlying debt.

(c) Equity Derivatives.

The Company’s equity derivatives are summarized as follows (in millions):

The Company maintains a portfolio of publicly traded equity securities which are subject to price risk. The Company may hold equity securities for strategic purposes or to diversify the Company’s overall investment portfolio. To manage its exposure to changes in the fair value of certain equity securities, the Company may enter into equity derivatives, including forward sale and option agreements. As of July 26, 2008, the Company had entered into forward sale agreements on certain publicly traded equity securities designated as fair value hedges. The gains and losses due to changes in the value of the hedging instruments are included in other income (loss), net, and offset the change in the fair value of the underlying hedged investment. The fair values of the equity derivatives are reflected in prepaid expenses and other current assets and other current liabilities.

10. Commitments and Contingencies.

(a) Operating Leases.

The Company leases office space in several U. S. locations. Outside the United States, larger leased sites include sites in Australia, Belgium, Canada, China, France, Germany, India, Israel, Italy, Japan, and the United Kingdom. Rent expense totaled $291 million, $219 million, and $181 million in fiscal 2008, 2007, and 2006, respectively. Future annual minimum lease payments under all noncancelable operating leases with an initial term in excess of one year as of July 26, 2008 are as follows (in millions):

(b) Purchase Commitments with Contract Manufacturers and Suppliers.

The Company purchases components from a variety of suppliers and uses several contract manufacturers to provide manufacturing services for its products. During the normal course of business, in order to manage manufacturing lead times and help ensure adequate component supply, the Company enters into agreements with contract manufacturers and suppliers that either allow them to procure inventory based upon criteria as defined by the Company or that establish the parameters defining the Company’s requirements. In certain instances, these agreements allow the Company the option to cancel, reschedule, and adjust the Company’s requirements based on its business needs prior to firm orders being placed. Consequently, only a portion of the Company’s reported purchase commitments arising from these agreements are firm, noncancelable, and unconditional commitments. As of July 26, 2008 and July 28, 2007, the Company had total purchase commitments for inventory of $2.7 billion and $2.6 billion, respectively.

In addition to the above, the Company records a liability for firm, noncancelable, and unconditional purchase commitments for quantities in excess of its future demand forecasts consistent with the valuation of the Company’s excess and obsolete inventory. As of July 26, 2008 and July 28, 2007, the liability for these purchase commitments was $184 million and $168 million, respectively, and was included in other current liabilities.

(c) Compensation Expense Related to Acquisitions and Investments.

In connection with the Company’s purchase acquisitions, asset purchases, and acquisitions of variable interest entities, the Company has agreed to pay certain additional amounts contingent upon the achievement of certain agreed-upon technology, development, product, or other milestones, or the continued employment with the Company of certain employees of acquired entities. See Note 3.

(d) Other Commitments.

The Company also has certain funding commitments primarily related to its investments in privately held companies and venture funds, some of which are based on the achievement of certain agreed-upon milestones, and some of which are required to be funded on demand. The funding commitments were approximately $359 million and $140 million as of July 26, 2008 and July 28, 2007, respectively.

(e) Variable Interest Entities.

In the ordinary course of business, the Company has investments in privately held companies and provides financing to certain customers through its wholly owned subsidiaries, which may be considered to be variable interest entities. The Company has evaluated its investments in these privately held companies and customer financings and determined that there were no significant unconsolidated variable interest entities as of July 26, 2008.

(f) Guarantees and Product Warranties.

The following table summarizes the activity related to the product warranty liability during fiscal 2008 and 2007 (in millions):

The Company accrues for warranty costs as part of its cost of sales based on associated material product costs, labor costs for technical support staff, and associated overhead. The products sold are generally covered by a warranty for periods ranging from 90 days to five years, and for some products the Company provides a limited lifetime warranty.

In the normal course of business, the Company indemnifies other parties, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed to hold the other parties harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, the Company has entered into indemnification agreements with its officers and directors, and the Company’s bylaws contain similar indemnification obligations to the Company’s agents. It is not possible to determine the maximum potential amount under these indemnification agreements due to the Company’s limited history with prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements have not had a material effect on the Company’s operating results, financial position, or cash flows.

The Company also provides financing guarantees, which are generally for various third-party financing arrangements to channel partners and other customers. See Note 6. The Company’s other arrangements as of July 26, 2008 that were subject to recognition and disclosure requirements under FIN 45 were not material.

(g) Legal Proceedings.

The Company and other defendants were subject to claims asserted by Telcordia Technologies, Inc. on July 16, 2004 in the Federal District Court for the District of Delaware alleging that various Cisco routers, switches and optical products infringed United States Patent Nos. 4,893,306, 4,835,763, and Re 36,633. Telcordia sought damages and injunctive relief. The Court ruled that, as a matter of law, the Company does not infringe Patent No. 4,893,306. After conclusion of a trial, on May 10, 2007, a jury found that infringement had occurred on the other patents and awarded damages in an amount that is not material to the Company. The Company has asked the Court to reverse the verdict as a matter of law, and if necessary, the Company intends to appeal the decision. Telcordia has asked the Court to enhance damages and award it attorneys’ fees and also has the right to appeal. The Company believes that the ultimate outcome of this matter and aggregate potential damages will not be material.

Brazilian authorities are investigating certain employees of the Company’s Brazilian subsidiary and certain employees of a Brazilian importer of the Company’s products relating to the allegation of evading import taxes and other alleged improper transactions involving the subsidiary and the importer. The Company is conducting a thorough review of the matter. To date, Brazilian authorities have not asserted a claim against the Company. The Company is unable to determine the likelihood of an unfavorable outcome on any potential claims against it or to reasonably estimate a range of loss, if any. In addition, the Company is investigating the allegations regarding improper transactions, the Company has proactively communicated with United States authorities to provide information and report on its findings, and the United States authorities are currently investigating such allegations.

In addition, the Company is subject to legal proceedings, claims, and litigation arising in the ordinary course of business, including intellectual property litigation. While the outcome of these matters is currently not determinable, the Company does not expect that the ultimate costs to resolve these matters will have a material adverse effect on its consolidated financial position, results of operations, or cash flows.

11. Shareholders’ Capital próprio.

(a) Stock Repurchase Program.

In September 2001, the Company’s Board of Directors authorized a stock repurchase program. As of July 26, 2008, the Company’s Board of Directors had authorized an aggregate repurchase of up to $62 billion of common stock under this program and the remaining authorized repurchase amount was $8.4 billion with no termination date. The stock repurchase activity under the stock repurchase program in fiscal 2007 and 2008 is summarized as follows (in millions, except per-share amounts):

(1) Includes stock repurchases that were pending settlement as of period end.

The purchase price for the shares of the Company’s stock repurchased is reflected as a reduction to shareholders’ equity. In accordance with Accounting Principles Board Opinion No. 6, “Status of Accounting Research Bulletins,” the Company is required to allocate the purchase price of the repurchased shares as (i) a reduction to retained earnings until retained earnings are zero and then as an increase to accumulated deficit and (ii) a reduction of common stock and additional paid-in capital. Issuance of common stock and the tax benefit related to employee stock incentive plans are recorded as an increase to common stock and additional paid-in capital.

(b) Other Repurchases of Common Stock.

The Company also repurchases shares in settlement of employee tax withholding obligations due upon the vesting of restricted stock or stock units.

(c) Preferred Stock.

Under the terms of the Company’s Articles of Incorporation, the Board of Directors may determine the rights, preferences, and terms of the Company’s authorized but unissued shares of preferred stock.

(d) Comprehensive Income.

The components of comprehensive income are as follows (in millions):

The Company consolidates its investment in a venture fund managed by SOFTBANK as the Company is the primary beneficiary as defined under FIN 46(R). As a result, SOFTBANK’s interest in the change in the unrealized gains and losses on the investments in the venture fund is recorded as a component of accumulated other comprehensive income and is reflected as a change in minority interest.

12. Employee Benefit Plans.

(a) Employee Stock Purchase Plan.

The Company has an Employee Stock Purchase Plan, which includes its subplan, the International Employee Stock Purchase Plan (together, the “Purchase Plan”), under which 321.4 million shares of the Company’s stock have been reserved for issuance. Eligible employees may purchase a limited number of shares of the Company’s stock at a discount of up to 15% of the lesser of the market value on the subscription date or the purchase date, which is approximately six months after the subscription date. The Purchase Plan terminates on January 3, 2010. The Company issued 19 million, 17 million, and 21 million shares under the Purchase Plan in fiscal 2008, 2007, and 2006, respectively. As of July 26, 2008, 63 million shares were available for issuance under the Purchase Plan.

(b) Employee Stock Incentive Plans.

Stock Incentive Plan Program Description.

As of July 26, 2008, the Company had five stock incentive plans: the 2005 Stock Incentive Plan (the “2005 Plan”); the 1996 Stock Incentive Plan (the “1996 Plan”); the 1997 Supplemental Stock Incentive Plan (the “Supplemental Plan”); the Cisco Systems, Inc. SA Acquisition Long-Term Incentive Plan (the “SA Acquisition Plan”); and the Cisco Systems, Inc. WebEx Acquisition Long-Term Incentive Plan (the “WebEx Acquisition Plan”). In addition, the Company has, in connection with the acquisitions of various companies, assumed the share-based awards granted under stock incentive plans of the acquired companies or issued share-based awards in replacement thereof. Share-based awards are designed to reward employees for their long-term contributions to the Company and provide incentives for them to remain with the Company. The number and frequency of share-based awards are based on competitive practices, operating results of the Company, government regulations, and other factors. Since the inception of the stock incentive plans, the Company has granted stock options to virtually all employees, and the majority has been granted to employees below the vice president level. The Company’s primary stock incentive plans are summarized as follows:

As amended on November 15, 2007, the maximum number of shares issuable under the 2005 Plan over its term is 559 million shares plus the amount of any shares underlying awards outstanding on November 15, 2007 under the 1996 Plan, the SA Acquisition Plan and the WebEx Acquisition Plan that are forfeited or are terminated for any other reason before being exercised or settled. However, any shares underlying awards outstanding on November 15, 2007 under the 1996 Plan, the SA Acquisition Plan, and the WebEx Acquisition Plan that expire unexercised at the end of their maximum terms will not be considered to become available for reissuance under the 2005 Plan. If any awards granted under the 2005 Plan are forfeited or are terminated for any other reason before being exercised or settled, then the shares underlying the awards will again be available under the 2005 Plan. The number of shares available for issuance under the 2005 Plan will be reduced by 2.5 shares for each share awarded as stock grants or stock units.

The 2005 Plan permits the granting of stock options, stock, stock units, and stock appreciation rights to employees (including employee directors and officers) and consultants of the Company and its subsidiaries and affiliates, and non-employee directors of the Company. Stock options granted under the 2005 Plan have an exercise price of at least 100% of the fair market value of the underlying stock on the grant date and expire no later than nine years from the grant date. The stock options will generally become exercisable for 20% or 25% of the option shares one year from the date of grant and then ratably over the following 48 or 36 months, respectively. Stock grants and stock units will generally vest with respect to 20% or 25% of the shares covered by the grant on each of the first through fifth or fourth anniversaries of the date of the grant, respectively. The Compensation and Management Development Committee of the Board of Directors has the discretion to use different vesting schedules. Stock appreciation rights may be awarded in combination with stock options or stock grants and such awards shall provide that the stock appreciation rights will not be exercisable unless the related stock options or stock grants are forfeited. Stock grants may be awarded in combination with non-statutory stock options, and such awards may provide that the stock grants will be forfeited in the event that the related non-statutory stock options are exercised.

The 1996 Plan expired on December 31, 2006, and the Company can no longer make equity awards under the 1996 Plan. The maximum number of shares issuable over the term of the 1996 Plan was 2.5 billion shares. Stock options granted under the 1996 Plan have an exercise price of at least 100% of the fair market value of the underlying stock on the grant date and expire no later than nine years from the grant date. The stock options generally become exercisable for 20% or 25% of the option shares one year from the date of grant and then ratably over the following 48 or 36 months, respectively. Certain other grants have utilized a 60-month ratable vesting schedule. In addition, the Board of Directors, or other committees administering the plan, have the discretion to use a different vesting schedule and have done so from time to time.

Supplemental Plan.

The Supplemental Plan expired on December 31, 2007, and the Company can no longer make equity awards under the Supplemental Plan. Officers and members of the Company’s Board of Directors were not eligible to participate in the Supplemental Plan. Nine million shares were reserved for issuance under the Supplemental Plan.

Acquisition Plans.

In connection with the Company’s acquisitions of Scientific-Atlanta and WebEx, the Company adopted the SA Acquisition Plan and the WebEx Acquisition Plan, respectively, each effective upon completion of the applicable acquisition. These plans constitute assumptions, amendments, restatements, and renamings of the 2003 Long-Term Incentive Plan of Scientific-Atlanta and the WebEx Communications, Inc. Amended and Restated 2000 Stock Incentive Plan, respectively. The plans permit the grant of stock options, stock, stock units, and stock appreciation rights to certain employees of the Company and its subsidiaries and affiliates who had been employed by Scientific-Atlanta or its subsidiaries or WebEx or its subsidiaries, as applicable. As a result of the shareholder approval of the amendment and extension of the 2005 Plan, as of November 15, 2007, the Company will no longer make stock option grants or direct share issuances under either the SA Acquisition Plan or the WebEx Acquisition Plan.

Dilutive Effect of Stock Options.

Weighted-average basic and diluted shares outstanding for fiscal 2008 were 6.0 billion shares and 6.2 billion shares, respectively. For the year ended July 26, 2008, the dilutive effect of potential common shares was approximately 177 million shares or 3.0% of the basic shares outstanding based on the Company’s average share price of $27.15.

The following table illustrates grant dilution computed based on net stock options granted as a percentage of shares of common stock outstanding at the fiscal year end (in millions, except percentages):

General Share-Based Award Information.

A summary of share-based award activity is as follows (in millions, except per-share amounts):

(1) The total pretax intrinsic value of stock options exercised during fiscal 2008, 2007, and 2006 was $1.6 billion, $3.1 billion and $1.3 billion, respectively.

(2) Amounts represent restricted stock and other share-based awards (excluding stock options) granted and assumed. The Company had total shares of restricted stock and restricted stock units outstanding of 10 million, 11 million, and 6 million as of July 26, 2008, July 28, 2007, and July 29, 2006, respectively. Share-based awards available for grant are reduced by 2.5 shares for each share awarded as stock grants or pursuant to stock units from the 2005 Plan subsequent to November 15, 2007.

The following table summarizes significant ranges of outstanding and exercisable stock options as of July 26, 2008 (in millions, except years and share prices):

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price of $22.43 as of July 25, 2008, which would have been received by the option holders had those option holders exercised their stock options as of that date. The total number of in-the-money stock options exercisable as of July 26, 2008 was 463 million. As of July 28, 2007, 829 million outstanding stock options were exercisable and the weighted-average exercise price was $30.13.

Valuation and Expense Information Under SFAS 123(R)

Share-based compensation expense recognized under SFAS 123(R) consists primarily of expenses for stock options, stock purchase rights, restricted stock, and restricted stock units granted to employees. The following table summarizes employee share-based compensation expense (in millions):

(1) Share-based compensation expense of $87 million, $34 million, and $87 million related to acquisitions and investments for fiscal 2008, 2007, and 2006, respectively, is disclosed in Note 3 and is not included in the above table.

As of July 26, 2008, total compensation cost related to unvested share-based awards, including share-based compensation relating to acquisitions and investments, not yet recognized was $3.4 billion, which is expected to be recognized over approximately 3.5 years on a weighted-average basis. The income tax benefit for employee share-based compensation expense was $330 million, $342 million, and $294 million for fiscal 2008, 2007, and 2006, respectively.

Lattice-Binomial Model.

Upon adoption of SFAS 123(R) at the beginning of fiscal 2006, the Company began estimating the value of employee stock options and employee stock purchase rights on the date of grant using a lattice-binomial model. Prior to the adoption of SFAS 123(R), the value of each employee stock option and employee stock purchase right was estimated on the date of grant using the Black-Scholes model.

The Company’s employee stock options have vesting provisions and various restrictions including restrictions on transfer and hedging, among others, and are often exercised prior to their contractual maturity. Lattice-binomial models are more capable of incorporating the features of the Company’s employee stock options than closed-form models such as the Black-Scholes model. The use of a lattice-binomial model requires extensive actual employee exercise behavior data and a number of complex assumptions including expected volatility, risk-free interest rate, expected dividends, kurtosis, and skewness. The weighted-average assumptions, using the lattice-binomial model, and the weighted-average expected life and estimated grant date fair values of employee stock options granted during the respective years and employee stock purchase rights with subscription dates in the respective years are summarized as follows:

The determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is impacted by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. The weighted-average assumptions were determined as follows:

For employee stock options, the Company used the implied volatility for two-year traded options on the Company’s stock as the expected volatility assumption required in the lattice-binomial model, consistent with SFAS 123(R) and SAB 107. For employee stock purchase rights, the Company used the implied volatility for six-month traded options on the Company’s stock. The selection of the implied volatility approach was based upon the availability of actively traded options on the Company’s stock and the Company’s assessment that implied volatility is more representative of future stock price trends than historical volatility. The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of the Company’s employee stock options and employee stock purchase rights. The dividend yield assumption is based on the history and expectation of dividend payouts. The estimated kurtosis and skewness are technical measures of the distribution of stock price returns, which affect expected employee exercise behaviors, and are based on the Company’s stock price return history as well as consideration of various academic analyses.

The expected life of employee stock options represents the weighted-average period the stock options are expected to remain outstanding and is a derived output of the lattice-binomial model. The expected life of employee stock options is impacted by all of the underlying assumptions and calibration of the Company’s model. The lattice-binomial model assumes that employees’ exercise behavior is a function of the option’s remaining vested life and the extent to which the option is in-the-money. The lattice-binomial model estimates the probability of exercise as a function of these two variables based on the entire history of exercises and cancellations on all past option grants made by the Company.

Accuracy of Fair Value Estimates.

The Company uses third-party analyses to assist in developing the assumptions used in, as well as calibrating, its lattice-binomial model. The Company is responsible for determining the assumptions used in estimating the fair value of its share-based payment awards. The Company’s determination of the fair value of share-based payment awards is affected by assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because the Company’s employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the existing valuation models may not provide an accurate measure of the fair value of the Company’s employee stock options. Although the fair value of employee stock options is determined in accordance with SFAS 123(R) and SAB 107 using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

(c) Employee 401(k) Plans.

The Company sponsors the Cisco Systems, Inc. 401(k) Plan (the “Plan”) to provide retirement benefits for its employees. As allowed under Section 401(k) of the Internal Revenue Code, the Plan provides for tax-deferred salary contributions for eligible employees. The Plan allows employees to contribute from 1% to 25% of their annual compensation to the Plan on a pretax and after-tax basis. Employee contributions are limited to a maximum annual amount as set periodically by the Internal Revenue Code. The Company matches pretax employee contributions up to 100% of the first 4% of eligible earnings that are contributed by employees. Therefore, the maximum matching contribution that the Company may allocate to each participant’s account will not exceed $9,200 for the 2008 calendar year due to the $230,000 annual limit on eligible earnings imposed by the Internal Revenue Code. All matching contributions vest immediately. The Company’s matching contributions to the Plan totaled $171 million, $131 million, and $96 million in fiscal 2008, 2007, and 2006, respectively.

The Plan allows employees who meet the age requirements and reach the Plan contribution limits to make a catch-up contribution not to exceed the lesser of 50% of their eligible compensation or the limit set forth in the Internal Revenue Code. The catch-up contributions are not eligible for matching contributions. In addition, the Plan provides for discretionary profit-sharing contributions as determined by the Board of Directors. Such contributions to the Plan are allocated among eligible participants in the proportion of their salaries to the total salaries of all participants. There were no discretionary profit-sharing contributions made in fiscal 2008, 2007, or 2006.

The Company also sponsors other 401(k) plans that arose from acquisitions of other companies. The Company’s contributions to these plans were not material to the Company on either an individual or aggregate basis for any of the fiscal years presented.

(d) Deferred Compensation Plans.

The Company maintains a deferred compensation plan for certain employees and directors of Scientific-Atlanta (the “SA Plan”). The deferred compensation liability under the SA Plan was approximately $126 million and $109 million, as of July 26, 2008 and July 28, 2007, respectively, and was recorded in current and long-term liabilities.

The Cisco Systems, Inc. Deferred Compensation Plan (the “Deferred Compensation Plan”), a nonqualified deferred compensation plan, became effective June 25, 2007. As required by applicable law, participation in the Deferred Compensation Plan is limited to a group of the Company’s management employees, which group includes each of the Company’s named executive officers. Under the Deferred Compensation Plan, which is an unfunded and unsecured deferred compensation arrangement, a participant may elect to defer base salary, bonus, and/or commissions, pursuant to such rules as may be established by the Company, up to the maximum percentages for each deferral election as described in the plan. This operates in a manner similar to the way in which the Company’s 401(k) plan operates, but without regard to the maximum deferral limitations imposed on 401(k) plans by the Internal Revenue Code. The Company may also, at its discretion, make a matching contribution to the employee under the Deferred Compensation Plan. A matching contribution equal to 4% of eligible compensation over the Internal Revenue Code limit for calendar year 2008 that is deferred by participants under the Deferred Compensation Plan will be made to eligible participants’ accounts at the end of calendar year 2008. The deferred compensation liability under this plan was approximately $45 million as of July 26, 2008 and was recorded in long-term liabilities.

(e) Defined Benefit Plans Assumed from Scientific-Atlanta.

Upon completion of the acquisition of Scientific-Atlanta, the Company assumed certain defined benefit plans related to employee pensions. Scientific-Atlanta had a defined benefit pension plan covering substantially all of its domestic employees, defined benefit pension plans covering certain international employees, a restoration retirement plan for certain domestic employees, and supplemental executive retirement plans for certain key officers (collectively, the “Pension Plans”).

The fair value of the liabilities of these plans was determined as of the July 26, 2008 and July 28, 2007 measurement dates. The fair value determination of the liabilities reflects the Company’s intent to integrate the Scientific-Atlanta employee benefit programs with those of the Company. As a result, no additional benefits have been accrued under the Pension Plans since February 2008.

The following table sets forth projected benefit obligations, plan assets, and amounts recorded in current and long-term liabilities under the Pension Plans (in millions):

The accumulated benefit obligations under the Pension Plans were $197 million and $225 million as of July 26, 2008 and July 28, 2007, respectively.

13. Income Taxes.

(a) Provision for Income Taxes.

The provision for income taxes consists of the following (in millions):

The Company paid income taxes of $2.8 billion, $1.7 billion, and $1.6 billion in fiscal 2008, 2007, and 2006, respectively. Income before provision for income taxes consists of the following (in millions):

The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes consists of the following:

The tax provision for fiscal 2008 included tax expense of $229 million related to the intercompany realignment of certain of the Company’s foreign operations during the third and fourth quarters of fiscal 2008. The tax provision for fiscal 2008 also included a net tax benefit of $162 million related to a settlement of certain tax matters with the IRS during the first quarter of fiscal 2008. In December 2006, the Tax Relief and Health Care Act of 2006 reinstated the U. S. federal R&D tax credit, retroactive to January 1, 2006. As a result, the tax provision for fiscal 2007 included a tax benefit of approximately $60 million related to the U. S. federal R&D tax credit attributable to fiscal 2006 R&D. The tax provision for fiscal 2006 included a benefit of approximately $124 million from the favorable settlement of a tax audit in a foreign jurisdiction.

U. S. income taxes and foreign withholding taxes associated with the repatriation of earnings of foreign subsidiaries were not provided for on a cumulative total of $21.9 billion of undistributed earnings for certain foreign subsidiaries. The Company intends to reinvest these earnings indefinitely in its foreign subsidiaries. If these earnings were distributed to the United States in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, the Company would be subject to additional U. S. income taxes (subject to an adjustment for foreign tax credits) and foreign withholding taxes. Determination of the amount of unrecognized deferred income tax liability related to these earnings is not practicable.

On October 22, 2004, the American Jobs Creation Act of 2004 (the “Jobs Creation Act”) was signed into law. The Jobs Creation Act created a temporary incentive for U. S. corporations to repatriate accumulated income earned abroad by providing an 85 percent dividends received deduction for certain dividends from controlled foreign corporations. In fiscal 2006, the Company distributed cash from its foreign subsidiaries and reported an extraordinary dividend (as defined in the Jobs Creation Act) of $1.2 billion and a related tax liability of approximately $63 million in its fiscal 2006 federal income tax return. This amount was previously provided for in the provision for income taxes and is included in income taxes payable. This distribution does not change the Company’s intention to indefinitely reinvest undistributed earnings of certain of its foreign subsidiaries in operations outside the United States.

As a result of certain employment and capital investment actions and commitments, the Company’s income in certain countries is subject to reduced tax rates and in some cases is wholly exempt from tax. These tax incentives expire in whole or in part at various times through fiscal 2025.

(b) Unrecognized Tax Benefits.

On July 29, 2007, the Company adopted FIN 48 which prescribes a comprehensive model for the financial statement recognition, measurement, classification, and disclosure of uncertain tax positions. As a result of the adoption of FIN 48, the Company reduced the liability for net unrecognized tax benefits by $451 million and accounted for this as a cumulative effect of a change in accounting principle that was recorded as an increase to retained earnings of $202 million and an increase to additional paid-in capital of $249 million. The total amount of gross unrecognized tax benefits as of the date of adoption was $3.3 billion, of which $2.9 billion would affect the effective tax rate if realized. The Company historically classified liabilities for unrecognized tax benefits in current income taxes payable. In implementing FIN 48, the Company has reclassified liabilities for unrecognized tax benefits for which the Company does not anticipate payment or receipt of cash within one year to noncurrent income taxes payable. In addition, the Company reclassified the income tax receivable to income taxes payable.

The aggregate changes in the balance of gross unrecognized tax benefits during fiscal 2008 were as follows (in millions):

In connection with the regular examination of the Company’s federal income tax returns for fiscal years ended July 27, 2002 through July 31, 2004, the IRS proposed certain adjustments related to the Company’s international operations. In the first quarter of fiscal 2008, the Company and the IRS agreed to a settlement with respect to certain tax issues related to U. S. income inclusions arising from the Company’s international operations for fiscal years ended July 27, 2002 through July 29, 2006. As a result of the settlement, the Company reduced the amount of gross unrecognized tax benefits by approximately $1.0 billion. The Company also reduced the amount of accrued interest by $39 million. In addition, the IRS has proposed other adjustments that are not covered under the settlement agreement related to fiscal years ended July 27, 2002 through July 31, 2004. The Company has timely filed a protest with IRS Appeals on these proposed adjustments. The Company believes that adequate amounts have been reserved for any adjustments that may ultimately result from these examinations.

As of July 26, 2008, $2.1 billion of the unrecognized tax benefits would affect the effective tax rate if realized. The Company’s policy to include interest and penalties related to income taxes, including unrecognized tax benefits, within the provision for income taxes did not change as a result of implementing FIN 48. As of the date of adoption of FIN 48, the Company had accrued $183 million in income taxes payable for the payment of interest and penalties. As of July 26, 2008, the Company had accrued $166 million in income taxes payable for the payment of interest and penalties, of which $8 million was recorded to the provision for income taxes during fiscal 2008. The Company is no longer subject to U. S. federal income tax audit for returns covering tax years through fiscal year 2001. With limited exceptions, the Company is no longer subject to state and local or foreign income tax audits for returns covering tax years through fiscal year 1997. Although timing of the resolution of audits is highly uncertain, the Company does not believe it is reasonably possible that the total amount of unrecognized tax benefits as of July 26, 2008 will materially change in the next 12 months.

(c) Deferred Tax Assets and Liabilities.

The following table presents the breakdown between current and noncurrent net deferred tax assets (in millions):

The components of the deferred tax assets and liabilities are as follows (in millions):

As of July 26, 2008, the Company’s federal, state, and foreign net operating loss carryforwards for income tax purposes were $344 million, $1.7 billion, and $97 million, respectively. If not utilized, the federal net operating loss carryforwards will begin to expire in fiscal 2016, the state net operating loss carryforwards will begin to expire in fiscal 2009, and the foreign net operating loss carryforwards will begin to expire in fiscal 2011. As of July 26, 2008, the Company’s federal and state tax credit carryforwards for income tax purposes were approximately $10 million and $600 million, respectively. If not utilized, the federal and state tax credit carryforwards will begin to expire in fiscal 2009.

14. Segment Information and Major Customers.

The Company’s operations involve the design, development, manufacturing, marketing, and technical support of networking and other products and services related to the communications and information technology industry. Cisco products include routers, switches, advanced technologies, and other products. These products, primarily integrated by Cisco IOS Software, link geographically dispersed local-area networks (LANs), metropolitan-area networks (MANs) and wide-area networks (WANs).

(a) Net Sales and Gross Margin by Theater.

The Company conducts business globally and is primarily managed on a geographic basis. The Company’s management makes financial decisions and allocates resources based on the information it receives from its internal management system. Sales are attributed to a geographic theater based on the ordering location of the customer. During the first quarter of fiscal 2008, the Company enhanced its methodology for attributing certain revenue transactions, including revenue deferrals, and the associated cost of sales for each to the respective geographic theater and revised the information utilized by the Company’s chief operating decision maker (CODM). As a result, the Company has reclassified prior year net sales and gross margin amounts by theater to conform to the current year’s presentation.

The Company does not allocate research and development, sales and marketing, or general and administrative expenses to its geographic theaters in this internal management system because management does not include the information in its measurement of the performance of the operating segments. In addition, the Company does not allocate amortization of acquisition-related intangible assets, share-based compensation expense, and the effects of purchase accounting adjustments to inventory to the gross margin for each theater because management also does not include this information in its measurement of the performance of the operating segments.

Summarized financial information by theater for fiscal 2008, 2007, and 2006, based on the Company’s internal management system and as utilized by the Company’s CODM, is as follows (in millions):

(1) Net sales in the United States were $20.2 billion, $18.3 billion, and $14.8 billion for fiscal 2008, 2007, and 2006, respectively.

(2) The unallocated corporate items primarily include the effects of amortization of acquisition-related intangible assets and share-based compensation expense.

(b) Net Sales for Groups of Similar Products and Services.

The following table presents net sales for groups of similar products and services (in millions):

The Company refers to some of its products and technologies as advanced technologies. As of July 26, 2008, the Company had identified the following advanced technologies for particular focus: application networking services, home networking, security, storage area networking, unified communications, video systems, and wireless technology. The Company continues to identify additional advanced technologies for focus and investment in the future, and the Company’s investments in some previously identified advanced technologies may be curtailed or eliminated depending on market developments.

(c) Other Segment Information.

The majority of the Company’s assets, excluding cash and cash equivalents and investments, as of July 26, 2008 and July 28, 2007 were attributable to its U. S. operations. The Company’s total cash and cash equivalents and investments held outside of the United States in various foreign subsidiaries was $24.4 billion as of July 26, 2008, and the remaining $1.8 billion was held in the United States. In fiscal 2008, 2007, and 2006, no single customer accounted for 10% or more of the Company’s net sales.

Property and equipment information is based on the physical location of the assets. The following table presents property and equipment information for geographic areas (in millions):

15. Net Income Per Share.

The following table presents the calculation of basic and diluted net income per share (in millions, except per-share amounts):

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Which of the following bodies has the ultimate authority to issue accounting pronouncements in the United States? Securities and Exchange Commission Financial Accounting Standards Board International Accounting Standards Committee Internal Revenue Service.

What historical evidence of the business operations of the private estate of Apollonius was discovered early inthe20th century? The Iliad Plato‘s Republic The Zenon papyri Pacioli’s work, Summa de Arithmetica Geometria Proportioni et Proportionalita ,

Who has been given credit or developing the double-entry system of bookkeeping? Francis Wheat Fra Luca Pacioli C. Littleton William Paton.

Which of the following was not a criticism of the development of accounting standards by the Accounting Principles Board? The independence of the members of the APB. The individuals serving on the board had full-time responsibilities elsewhere that might influence their views of certain issues. The structure of the board. The largest eight public accounting firms (at that time) were automatically awarded one member, and there were usually five or six other public accountants on the APB. The accounting standards developed were dissimilar to those developed by the International Accounting Standards Committee. Response time. The emerging accounting problems were not being investigated and solved quickly enough by the part-time members.

Which of the following is the professional organization of university accounting professors? American Accounting Association American Institute of Certified Public Accountants American Institute of Accountants Financial Executives Institute.

What controversy originally highlighted the need for standard setting groups to have more authority? Accounting for stock options Accounting for derivatives Accounting for marketable securities Accounting for the investment tax credit.

Which of the following committees recommended abolishing the Accounting Principles Board and replacing it with the Financial Accounting Board ? Wheat Cohen Trueblood Anderson.

Which of the following types of pronouncements now establishes generally accepted accounting principles? Statements of Concepts Statements of Financial Accounting Standards APB Opinions Accounting Standards Updates.

Which of the following types of pronouncements are intended to establish the objectives and concepts that the FASB will use in developing standards of financial accounting and reporting? Statements of Concepts Statements of Financial Accounting Standards APB Opinions Accounting Standards Updates.

Which of the following is not a consequence of the standards overload problem to small businesses? If a small business omits a GAAP requirement from audited financial statements, a qualified or adverse opinion may be rendered. Small businesses do not need to keep financial records The cost of complying with GAAP requirements may cause a small business to forgo the development of other, more relevant information. Small CPA firms that audit smaller companies must keep up to date on all the same requirements as large international firms, but they cannot afford the specialists that are available on a centralized basis in the large firms.

Some accountants maintain that accounting standards are as much a product of political action as they are of careful logic or empirical findings. This belief is an example of the concept of Standard setting as apolitical process Standards overload Economic consequences The role of ethics in accounting.

T he impact of accounting reports on various segments of our economic society is the definition of the concept of Standard setting as apolitical process Standards overload Economic consequences The role of ethics in accounting.

Considering and understanding how business decisions affect the financial statements is The sole responsibility of the Securities and Exchange Commission. Provided in the auditor’s report. Referred to as an economic consequence perspective. Interpreted strictly by the company’s suppliers.

Which of the following is a source of nonauthoritative accounting guidance and literature? Financial Accounting Standards Board Statements Financial Accounting Standards Board Interpretations Financial Accounting Standards Board Technical Bulletins Practices that are widely recognized and prevalent either generally or in the industry.

Which of the following companies was involved in an accounting failure that caused the public accounting firm Arthur Andersen to gout of business? Goldman Sachs Wachovia Enron AIG.

What is the difference between normative and positive theory? Why is the development of a general theory of accounting important Discuss the evolution of accounting during the 1930s. Discuss the evolution of the three private sector accenting standard setting organizations. What were the purposes of the Wheat and Trueblood committees? What was the purpose of the GAAP Hierarchy? What were the four types of pronouncements issued by the FASB? Discuss why standard setting may be viewed as a political process. Define the following terms Discuss the evolution of the phrase “generally accepted accounting principles. What controversy caused the AICPA to issue Rule 203 that requires companies to use GAAP when issuing financial statements? Discuss the FASB ASC including the reasons for its adoption and the FASB’s goals in developing it.. Discuss the role of ethics in accounting. What is a special purpose entity and how do they work? How did the Sarbanes-Oxley Act change the way the FASB is funded? Discuss the objectives of the International Accounting Standards Board.

Which early accounting theorist was among the first to express the view that all changes in the value of assets and liabilities should be reflected in the financial statements ?\ C. Littleton John Canning William Paton DR Scott.

Which of the following economists most influenced the views of DR Scott? Thorstein Veblen John Hicks Karl Marx John Smith.

Which of the following is not one of DR Scott’s hierarchy of accounting postulates and principles? Orientation postulate. The principles of truth and fairness. The materiality principle The principles of adaptability and consistency.

Which of the following organizations published the monograph titled A Tentative Statement of Accounting Principles Affecting Annual Corporate Reports SEC AAA AIA NAA.

Which of the following organizations published the monograph titled A Statement of Accounting Principles ? SEC AAA AIA NAA.

Who was the author of Accounting Research Study No. 1, The Basic Postulates of Accounting ? Robert Sprouse Maurice Moonitz Alvin Jennings\ Thomas Hatfield.

Which of the following is not an approaches to accounting theory AS categorized by Statement on Accounting Theory and Theory Acceptance ? Classical, Neoclassical Decision usefulness Information economics.

Under Statement of Financial Accounting Concepts No. 2, feedback value is an ingredient of the primary quality o.

Under Statement of Financial Accounting Concepts No. 2, which of the following interacts with both relevance and reliability to contribute to the usefulness of information? Comparability Timeliness Neutrality Predictive value.

Which of the following hierarchy of qualities did Statement of Financial Accounting Concepts No. 2 indicate as being most important? Relevance Reliability Verifiability Decision usefulness.

Which of the following is considered a pervasive constraint by Statement of Financial Accounting Concepts No. 2 Benefits>costs Conservatism Timeliness Verifiability.

Under Statement of Financial Accounting Concepts No. 2, which of the following is an ingredient of the primary quality of relevance? Predictive value Materiality Understandability Verifiability.

Under Statement of Financial Accounting Concepts No. 2, which of the following is an ingredient of the primary quality of reliability? Understandability Verifiability Predictive value Materiality.

Under Statement of Financial Accounting Concepts No. 2, the ability through consensus of measures to ensure that information represents what it purports to represent is an example of the concept of Relevance Verifiability Representational faithfulness Feedback value.

Under Statement of Financial Accounting Concepts No. 2, which of the following relates to both relevance and reliability? Timeliness Materiality Verifiability Neutrality.

Which of the following is not a qualitative characteristic associated with reliability? Verifiable Conservatism Neutral Faithful representation.

An item is considered material if It doesn’t costs a lot of money. It is of a tangible good. It is likely to influence the decision of an investor or creditor. The cost of reporting the item is greater than its benefits.

Discuss the contributions of Paton and Canning to the development of accounting theory. Discuss DR Scott’s hierarchy of postulates and principles. Discuss the contributions of the works by Sanders Hatfield and More, and Paton and Littleton to accounting theory. Discuss accounting Research Study No. 1. Discuss the objectives of accounting as outlined by the T rueblood Committee. What were the approaches to accounting theory identified by SATTA? According to Kuhn, how dies scientific progress occur? What is the purpose of the conceptual framework? List the objectives of financial accounting as outlined in SFAC No 1: “Objective of Financial Reporting by Business Enterprises. What quality of information is viewed as the most important in SFAC No. 2: Qualitative Characteristics of Accounting Information? Define the following terms: Relevance.

Reliability According to SFAC No. 5 , what should a full set of financial statements for a period show? What is the purpose of SFAC No. 7: “Using Cash Flow Information and Present Value in Accounting Measurements? What two approaches to present value were discussed in SFAS No. 7? Discuss the issue of principles based vs. rule based accounting standards. Discuss how the FASB and the IASC acted to improve comparability under the Norwalk Agreement.

Which of the following is not an environmental actor that could impact on the development of a country’s accounting system? Level of education\ Political system Geographic location Legal system.

What is the current acronym for the body most responsible for issuing international accounting standards? IASB SEC FASB IASC.

Which of the following bodies has the responsibility to issue international financial reporting standards (IFRS) The International Financial Reporting Interpretations Committee The International Standards Advisory Council The IASC Foundation The International Accounting Standards Board.

Which of the following is not a use of international accounting standards? As national requirements. As standards to be violated to improve intercountry comparability.. As an international benchmark for those countries that develop their own requirements. By regulatory authorities for domestic and foreign companies.

How does the IASC enforce its standards? Through , the International Organization of Securities Commission Through the concept of best endeavors Through the Securities and Exchange Commission Through the Financial Accounting Standards Board.

What is the name given to the agreement between the FASB and IASC to harmonize accounting standards? The Norwalk Agreement The London agreement The Washing ton D C agreement The Paris Accords.

What is the title of the form that foreign companies have used to reconcile their financial statements to U. S. GAAP? Form 10-K Form 10-Q Form SX Form20-F.

Which of the following is not a qualitative characteristic contained in the IASB’s Framework for the Preparation of Financial Statements ? Understandability Timeliness Relevance Reliability.

Which of the following is not an element of financial statements contained in the IASB’s Framework for the Preparation of Financial Statements ? Gain Income Expense Asset.

Which of the following is seen as a pervasive difference between IASB’s and FASB’s Conceptual Frameworks? Definition of elements Number of qualitative characteristics Scope of authority Level of detail.

Which of the following concepts is contained in the FASB’s conceptual framework but not in the IASC’s Expense Comprehensive income Asset Liability.

Discuss the environmental factors that impact on the development of a country’s accounting system. Discuss the approaches a company might take when issuing financial reports to users in foreign countries. What is the purpose of the International Accounting Standards Board? Discuss the factors that have contributed to the need for new approaches to international standard setting. Discuss the IASB’s annual improvements project.. Discuss the composition and role of The International Accounting Standards Board.. Discuss the role of The International Financial Reporting Interpretations Committee.

How are IASB standards used by various countries? Discuss the Short-term International Convergence Project Discuss the IASB-FASB Norwalk agreement. List the milestones contained in the FASB-IASB Roadmap Convergence Project. What is the objective of the joint FASB-IASB Convergence Project? Under rules enacted prior to 2007, how could a foreign company list its securities for sale in U. S. capital markets? How did this rule change? Discuss the objectives of accounting as defined by the IASB’s Framework for the Preparation of Financial Statements Discuss the qualitative characteristics of accounting information as defined by the IASB’s Discuss the elements of financial statements defined by the IASB’s Framework for the Preparation of Financial Statements. Discuss the concepts of capital and capital maintenance discussed in the Framework for the Preparation of Financial Statements.

Discuss IFRS No. 1 , “First Time Adoption of International Reporting Standards.

Which of the following research approaches emphasizes going from the specific to the general? Deductive Behavioral Inductive Pragmatic.

Which of the following research approaches is based on the concept of utility or usefulness? Deductive Behavioral Inductive Pragmatic.

Which of the following research approaches is attributed to DR Scott? Deductive Ethical Inductive Pragmatic.

Which of the following outcomes of providing accounting information is an attempt to identify individual securities that are mispriced by reviewing all available financial information? Agency theory Efficient markets Fundamental analysis Capital asset pricing model.

Which of the following outcomes of providing accounting information is an attempt to deal with both risks and returns? Agency theory Efficient markets Fundamental analysis Capital asset pricing model.

Which of the following outcomes of providing accounting information is based on the supply and demand model Agency theory Efficient markets Fundamental analysis Capital asset pricing model.

The efficient market hypothesis holds that that financial markets price assets at their intrinsic worth, given all available information. Which of the following forms of the efficient market hypothesis defines all available information as knowledge of past security prices? Weak Semi-weak Semi-strong Strong.

The efficient market hypothesis holds that that financial markets price assets at their intrinsic worth, given all available information. Which of the following forms of the efficient market hypothesis defines all available information as all publicly available information including past stock prices? Weak Semi-weak Semi-strong Strong.

The efficient market hypothesis holds that that financial markets price assets at their intrinsic worth, given all available information. Which of the following forms of the efficient market hypothesis defines all available information as information, including security price trends, publicly available information, and insider information? Weak Semi-weak Semi-strong Strong.

What theory on the outcomes of providing accounting information attempts to answer the question: What is an individual’s expected benefit from a particular course of action? Agency theory Efficient markets Fundamental analysis Capital asset pricing model.

Which of the following is not viewed as a cost to the principal in an agency relationship? Monitoring expenditures by the principal Monitoring expenditures by the agent Bonding expenditures by the agent The residual loss.

What theory on the outcomes of providing accounting information attempts to assess an individual’s ability to use information? Agency theory Efficient markets Human information processing Capital asset pricing model.

Which of the following is not a conclusion that has been drawn from human information processing research? An individual’s perception of information is quite selective. That is, since individuals are capable of comprehending only a small part of their environment, their anticipation of what they expect to perceive about a particular situation will determine to a large extent what they do perceive. Since individuals make decisions on the basis of a small part of the total information available, they do not have the capacity to make optimal decisions Individuals are able to process and integrate large amounts of information simultaneously Since individuals are incapable of integrating a great deal of information, they process information in a sequential fashion.

What theory on the outcomes of providing accounting information rejects the view that knowledge of accounting is grounded in objective principles Agency theory Critical perspective Fundamental analysis Capital asset pricing model.

Briefly describe the following research approaches: What is fundamental analysis and what is its goal? Describe the efficient market hypothesis and its three forms. Discuss the capital asset pricing model including the concepts of unsystematic risk, systematic risk and beta. Discuss the difference between normative and positive accounting theory. What is the basic assumption of agency theory? Why is the relationship between shareholders and management an agency relationship? What is the goal of human information processing studies? What are the genera findings of these studies and what is the implication for accounting? Discuss the concept of critical perspectives research in accounting. Discuss the relationship among research, education, and practice in accounting.

One concept of income suggests that income be measured by determining the net change over time in the discounted present value of net cash flow expected to be received by the firm. Under this concept of income, which of the following, ignoring income taxes would not affect the amount of income for a period? Providing services to outsiders and investments of the funds received Production of goods or services not yet sold not yet delivered to customers or clients. Windfall gains and losses due to external causes. The method used to depreciate property, plant and equipment.

The term revenue recognition conventionally refers to The process of identifying transactions to be recorded as revenue in an accounting period. The process of measuring and relating revenue and expenses of an enterprise for an accounting period. The earning process that gives rise to revenue realization. The process of identifying those transactions that result in an inflow of assets from customers.

In the transactions approach to income determination, income is measured by subtracting the expenses resulting from specific transactions during the period from revenues of the period also resulting from transactions. Under a strict transactions approach to income measurement, which of the following would not be considered a transaction? Sale of goods on account at 20 percent markup Exchange of inventory at a regular selling price for equipment Adjustment of inventory in lower of cost or market inventory valuations when market is below cost. Payment of salaries.

Conventionally accountants measure income By applying a value added concept By using a transactions approach As a change in the value of owners’ equity As a change in the purchasing power of owners’ equity.

Arid Lands, Inc., is engaged in extensive exploration for water in the Caprock Desert. If upon discovery of water the corporation does not recognize any revenue from water sales until the sales exceed the costs of exploration, the basis of revenue recognition being employed is the Production basis Cash (or collection) basis Sales (or accrual) basis Sunk cost (or cost recovery) basis.

The installment method of recognizing revenue is not acceptable for financial reporting if The collectability of the sales price is reasonably assured The installment period is less than 12 months The method is applied to only a portion of the total Collection expenses can be reasonably predicted.

The principal disadvantage of using the percentage of completion method of recognizing revenue from long-term contracts is that it Is unacceptable for income tax purposes May require that intraperiod tax allocation procedures be used Gives results bases upon estimates that may be subject to considerable uncertainty Is likely to assign a small amount of revenue to a period during which much revenue was actually earned.

One of the basic features of financing accounting is the Direct measurement of economic resources and obligations and changes in them in terms of money and sociological and psychological impact Direct measurement of economic resources and obligations and changes in them in terms of money Direct measurement of economic resources and obligations and changes in them in terms of money and sociological impact Direct measurement of economic resources and obligations and changes in them in terms of money and psychological impact.

Uncertainty and risks inherent in business situations should be adequately considered in financial reporting. This statement is an example of the concept of Conservatism Completeness Neutrality Representational faithfulness.

Determining periodic earnings and financial position depends on measuring economic resources and obligations and changes in them as these changes occur. This explanation pertains to Disclosure Accrual accounting Materiality The matching concept.

Under what condition is it proper to recognize revenues prior to the sale of the merchandise? When the ultimate sale of the goods is at an assured sales price When the revenue is to be reported as an installment sale When the concept of internal consistency (of amounts of revenue) must be complied with When management has a long-established policy to do so.

Which of the following is not a concept of income identified by Bedford? Psychic Real Investment Money.

The definition of the economic concept ofincomeis usually attributed towhich of the following economists? R. Hicks Paul Samuelson Ben Bernanke Adam Smith.

Which of the following is not an approach to determining current value ? Replacement cost Thrift value Selling price Discounting present value.

Each asset—inventory, plant, equipment, and so on—would be valued based on the selling price that would be realized if the firm chose to dispose of it is the definition of which of the following current value concepts? Replacement cost Entry price Exit value Discounted present value.

The cost to replace assets with similar assets in a similar condition is the definition of which of the following current value concepts? Replacement cost Selling price Exit value Discounted present value.

Income is equal to the difference between the present value of the net assets at the end of the period and their present value at the beginning of the period, excluding the effects of investments by owners and distributions to owners is the definition of which of the following current value concepts? Replacement cost Selling price Exit value Discounted present value.

Which of the following is not a criteria outlined in SEC Staff Accounting Bulletin No. 101 for the recognition of revenue? Persuasive evidence of an arrangement exists. Delivery has not occurred. The vendor’s fee is fixed or determinable. Collectability is probable.

Which of the following accounting theorists called of conservatism the most influential principle of valuation in accounting? Henry Sweeney Robert Sprouse Robert Sterling Edgar Edwards.

The one-time overstatement of restructuring charges to reduce assets, which reduces future expenses, is the definition of which of the following earnings management techniques? Taking a bath Creative acquisition accounting Creasing “cookie jar” reserves Abusing the materiality concept.

Deliberately recording errors or ignoring mistakes in the financial statements under the assumption that their impact is not significant, is the definition of which of the following earnings management techniques? Taking a bath Creative acquisition accounting Creasing “cookie jar” reserves Abusing the materiality concept.

Overstating sales returns or warranty costs in good times and using these overstatements in bad times to reduce similar charges, is the definition of which of the following earnings management techniques? Taking a bath Creative acquisition accounting Creasing “cookie jar” reserves Abusing the materiality concept.

List and three reasons why income reporting is important to our economic society. Discuss the differences between the economic and accounting concepts of income. Discuss the three basic concepts of income as defined by Bedford. Discuss the difference between financial capital maintenance and physical capital maintenance. Define the following terms: Entry price Exit price Discounted present value Discuss the four types of income defined by Edwards and Bell. What conditions must be satisfied in order to recognize revenue according to Staff Accounting Bulletin (SAB) No. 101 , “Revenue Recognition in Financial Statements? Discuss how revenue might be recognized at various points in a company’s production – sale cycle. Discuss the matching concept. Define the following terms: Holding gains Materiality Conservatism Discuss the concepts of earnings quality and earnings management including:

The disposal of a significant component of a business is called A change in accounting principle An extraordinary item An other expense Discontinued operation.

If year one sales equal $800,000, year two equal $840,000 and year three equals $896,000 the percentage to be assigned for year two in a sales trend analysis, assuming that year 1 is the base year, is 100% 89% 105% 112%

A measure of a company’s profitability is the Current ratio Current cash debt coverage ratio Return on assets ratio Debt to total assets ratio.

Which of the following is not an economic consequence of financial reporting? Financial information can affect the distribution of wealth among investors. More informed investors, or investors employing security analysts, may be able to increase their wealth at the expense of less informed investors. Financial information can affect the level of risk accepted by a firm. Focusing on short-term, less risky projects may have long-term detrimental effects. Financial information can affect the rate of capital formation in the economy and result in a reallocation of wealth between consumption and investment within the economy. Financial information can affects the allocation of psychic income among investors.

The statement, net income should reflect all items that affected the net increase or decrease in stockholders’ equity during the period is consistentwithwhich of the following concepts of income? Economic All inclusive Current operating performance Money.

The phrase events and transactions that are distinguished by both their unusual nature and their infrequency of occurrence describes: Changes in accounting principles Prior period adjustments Extraordinary items Prior period adjustments.

Which of the following is not an accounting change? Change in accounting principle Change in accounting estimate Change in a reporting entity Change because of an error.

Which of the following is not an example of an error? A change from an accounting practice that is not generally acceptable to a practice that is generally acceptable. Mathematical mistakes. A change from LIFO to FIFO inventory costing The incorrect classification of costs and expense.

The formula, Operating profit/Sales, is used to calculate Gross profit percentage Net profit percentage Comprehensive income percentage Operating profit percentage.

The accounts receivable turnover and inventory turnover ratios are used to analyze Long-term solvency Profitability Liquidity Leverage.

A high accounts receivable turnover ratio indicates Customers are making payments quickly A large portion of the company’s sales are on credit Many customers are not paying their receivables in a timely manner The company’s sales have increased.

The return on assets ratio is comprised of Profit margin and debt to total assets ratio. Profit margin and asset turnover ratio. Times interest earned and debt to stockholders’ equity ratio. Profit margin and free cash flow.

An example of the correction of an error in previously issued financial statements is a change From the completed contract to the percentage-of-completion method of accounting for long-term construction-type contracts. In the depletion rate, based on new engineering studies of recoverable mineral resources. From the sum-of-years-digits to the straight-line method of depreciation for all plant assets. From the installment basis of recording sales to the accrual basis, when collection of the sales price has been and continues to be reasonably assured.

Which of the following is characteristic of a change in an accounting estimate? It usually need not be disclosed It does not affect the financial statements of prior periods It should be reported through the restatement of the financial statements It makes necessary the reporting of pro forma amounts for prior periods.

Which of the following items, if material in amount would normally be considered an extraordinary item for reporting results of operations? Utilization of a net operating loss carryforward Gains or losses on disposal of a segment of a business Adjustments of accruals on long-term contracts Gains or losses from a fire.

Which of the following is an example of an extraordinary item in reporting results of operations? A loss incurred because of a strike by employees The write-off of deferred research and development costs believed to have no future benefit A gain resulting from the devaluation of the U. S. dollar A gain resulting from the state exercising its right of eminent domain on a piece of land used as a parking lot.

A company changed its method of inventory pricing from last-in, first-out to first-in, first-out during the current year. Generally accepting accounting principles require that this change in accounting method be reported by: Accounting for the effects of the change in the current and future periods. Showing the cumulative effect of the change in the current year’s financial statements and pro forma effects on prior year’s financial statements in an appropriate footnote Disclosing the reason for the change in the “significant accounting policies” footnote for the current year but not restating prior year financial statements Applying retroactively the new method in restatements of prior years and appropriate footnote disclosures.

A transaction that is material in amount, unusual in nature, but not infrequent in occurrence should be presented separately as a (an) Component of income from continuing operations, but not net of applicable income taxes Component of income from continuing operations, net of applicable income taxes Extraordinary item, net of applicable income taxes Prior period adjustment, but not net of applicable income taxes.

An extraordinary item should be reported separately as a component of income After discontinued operations of a component of a business Before discontinued operations of a component of a business After cumulative effect of accounting changes and after discontinued operations of a component of a business After cumulative effect of accounting changes and before discontinued operations of a component of a business.

The correction of an error in the financial statements of a prior period should be reflected, net of applicable income taxes, in the current Income statement after income from continuing operations and before extraordinary items Income statement after income from continuing operations and after extraordinary items Retained earnings statement as an adjustment of the opening balance Retained earnings statement after net income but before dividends.

A loss from the disposal of a component of a business enterprise should be reported separately as a component of income Before extraordinary items After extraordinary items After extraordinary items and cumulative effect of accounting changes Before extraordinary items and cumulative effect of accounting changes.

A prior period adjustment should be reflected, net of applicable income taxes, in the financial statements of a business entity in the Retained earnings statement after net income but before dividends Retained earnings statement as an adjustment of the opening balance Income statement after income from continuing operations Income statement as part of income from continuing operations.

Antidilutive securities would generally be used in the calculation of.

Earnings per share Earnings per share.

A change in the salvage value of an asset depreciated on a straight-line basis and arising because additional information has been obtained is An accounting change that should be reported in the period of change and future periods of change if the change affects both An accounting change that should be reported by restating the financial statements of all prior periods presented A correction of an error Not an accounting change.

A loss should be separately as a component of net income when it is unusual in nature and which of the following?

In Amount In Occurrence.

When a component of a business has been discontinued during the year, this s’ component s operating losses of the current period up to the measurement date should be included in the Income statement as part of the income (loss) from operations of the discontinued component Income statement as part of the loss on disposal of the discontinued component Income statement as part of the income (loss) from continuing operations Retained earnings statement as a direct decrease in retained earnings.

Discuss the economic consequences of financial reporting. Discuss the four income statements elements defined by SFAC No. 2. Discuss the all inclusive vs. current operating performance views of income. Define and discuss the accounting treatment for discontinued operations. Define and discuss the accounting treatment for extraordinary items. What are accounting changes and why is it an issue. List and define the three types of accounting changes. Discuss the concept of simple vs. complex capital structures and how it relates to the reporting of earnings per share. Define and discuss the accounting treatment for prior period adjustments. Define comprehensive income. What is the purpose of reporting comprehensive income? Obtain a company’s income statement and ask the students to compute the following:

Discuss the sources of guidance for recording accounting transactions outlined by IAS No. 8, Accounting Policies, Changes in Accounting Estimates and Errors.

On a balance sheet, what is the preferable presentation of notes or accounts receivable from officers, employees, or affiliated companies? As trade notes and accounts receivable if they otherwise qualify as current assets As assets but separately from other receivables As offsets to capital By means of notes or footnotes.

The basis for classifying assets as current or noncurrent is the period of time normally elapsed from the time the accounting entity expends cash to the time it converts Inventory back to cash or 12 months, whichever is shorter Receivable s back into cash or 12 months, whichever is longer Tangible fixed assets back into cash or 12 months, whichever is longer Inventory back to cash or 12 month, whichever is longer.

The valuation basis used in conventional financial statements is Replacement cost Market value Original cost A mixture of costs and values.

A transaction that would appear as an application of funds on a conventional funds statement using the all-financial-resources concept, but not on a statement using the traditional working capital concept would be the Acquisition of property, plant, and equipment for cash Reacquisition of bonds issued by the reporting entity Acquisition of property, plant, and equipment with an issue of common stock Declaration and payment of dividends.

There would probably be a major difference between a statement of source and application of working capital and a cash flow statement in the treatment of Dividends declared and paid Sales of noninventory assets for cash at a loss Payment of long-term debt A change during the period in the accounts payable balance.

A basic objective of the statement of cash flows is to Supplant the income statement and balance sheet Disclose changes during the period in all asset and all liability accounts Disclose the change in working capital during the period Provide essential information for financial statements users in making economic decisions.

A statement of cash flows should be issued by a profit-oriented business As an alternative to the statement of income and retained earnings Only if the business classifies its assets and liabilities as current and noncurrent Only when two-year comparative balance sheets are not issued Whenever a balance sheet and a statement of income and retained earnings are issued.

When preparing a statement of changes in financial position using the cash basis for defining funds, an increase in ending inventory over beginning inventory will result in an adjustment to reported net earnings because Funds were increased since inventory is a current asset The net increase in inventory reduced cost of goods sold but represents an assumed use of cash Inventory is an expense deducted in computing net earnings, but is not a use of funds All changes in noncash accounts must be disclosed under the all financial resources concept.

Which of the following should theoretically be presented in a statement of changes in financial position only because of the all-financial-resources concept? Conversion of preferred stock to common stock Purchase of treasury stock Sale of common stock Declaration of cash dividend.

When preparing a funds statement using the all financial resources concept, the retirement of long-term debt by the issuance of common stock should be presented in a statement of changes in financial position as a.

Source of Funds Use of Funds.

The working capital format is one possible format for presenting a statement of changes in financial position. Which of the following formats is (are) also theoretically acceptable?

Cash Quick Assets.

Acceptable Not acceptable Not acceptable Not acceptable Not acceptable Acceptable Acceptable Acceptable.

A gain on the sale of plant assets in the ordinary course of business should be presented in a statement of cash flows as a (an) Source and use of cash Use of cash Addition to income from continuing operations Deduction from income from continuing operations.

Which of the following should be presented nn a statement of cash flows?

Conversion of Conversion of.

Long-term debt preferred stock.

to common stock to common stock.

The balance sheet discloses Stocks Flows Both stocks andf lows Neither stocks nor flows.

Which of the following is not a balance sheet element? Assets Liabilities Gains Equities.

Which of the following is nota component of equity? Common stock Treasury stock Retained earnings Unearned revenue.

Which of the following is not an important aspects of SFAS No. 157 (FASB ASC 820)? A new definition of fair value. A requirement that all assets and liabilities are to be measured at their fair value. A fair value hierarchy used to classify the source of information used in fair value measurements (for example, market based or nonmarket based). New disclosures of assets and liabilities measured at fair value based on their level in the hierarchy.

The definition of fair value in SFAS No 157(FASB ASC 820) is Entry price based Exit price based Replacement cost based Historical cost based.

The SFAS No 157 (FASB ASC 820) fair value hierarchy contains Two level Three levels Four levels Five levels.

Which of the following s the lowest level of the SFAS 157 (FASB ASC 820) fair value hierarchy? Unobservable inputs (that are corroborated by observable market data) Unobservable inputs (that are not corroborated by observable market data) Observable market-based inputs (or unobservable inputs that are corroborated by market data) Quoted market prices for identical assets or liabilities in active markets.

The calculation net income/sales is the formula for which of the following ratios Return on assets Profit margin Asset turnover Asset usage.

The calculation sales/average total assets is the formula for which of the following ratios Return on assets Profit margin Asset turnover Asset usage.

The calculation net income/average total assets is the formula for which of the following ratios Return on assets Profit margin Asset turnover Asset usage.

The firm’s ability to use its financial resources to adapt to change is the definition of Liquidity Solvency Financial flexibility Working capital.

A firm’s ability to obtain cash for business operations change is the definition of Liquidity Solvency Financial flexibility Working capital.

The firm’s ability to convert an asset to cash or to pay a current liability change is the definition of Liquidity Solvency Financial flexibility Working capital.

Net cash provided (used) by operating activities − net cash used in acquiring property, plant, and equipment − cash dividends paid is the calculation for Free cash flow Cash flow f rom investing activities Working capital Current ratio.

Which of the following is a difference between IAS No. 7 and SFAS No. 95 (FASB ASC 230)? IAS No. 7 requires the use of the direct method IAS No. 7 required the use of the indirect method IAS No 7 requires the use of the all financial resources concept of funds IAS No. 7 requires extraordinary items be disclosed separately as operating, investing, or financing activities.

Investments in equity securities are disclosed as current assets on a company’s balance sheet if Management intends to sell them within a year and they have a ready market exists. The fair market value cannot be determined. Management intends to convert them into common stock within one year. Management owns less than 50% of the outstanding stock.

What is reported on the statement of cash flows? Operating, investing, and financing activities of an entity for a period of time All revenues and expense listed by operating, financing, and operating actitivity Operating, investing, and financing activities of an entity at the balance sheet date A detail of all incoming and outgoing cash flows of a business.

Discuss the following balance sheet elements as defined by SFAC No. 2: Assets Liabilities Equity List three valuation techniques currently used on the balance sheet and discuss how each are used (What accounts?). Define the following terms: Current assets Investments Property, plant and equipment Current liabilities Treasury stock How is fair value defined in SFAS No. 157 (FASB ASC 820)? Describe the fair value hierarchy as defined in SFAS No.157. Obtain a company’s financial statements and ask the students to compute the following: Return on investment Adjusted return on investment Profit margin ratio Asset turnover ratio Free cash flow What question does the statement of cash flows enable financial statement users to answer? Define the following terms: Liquidity Solvency Financial flexibility Discuss the direct vs. indirect methods of preparing the statement of cash flows. Define and discuss the three major sections of the statement of cash flows.

ACC 563 Final Exam Solved.

Of the following items, the one that should be classified as a current asset is Trade installment receivables normally collectible in 18 months Cash designated for the redemption of callable preferred stock Cash surrender value of a life insurance policy of which the company is beneficiary A deposit on machinery ordered, delivery of which will be made within six months.

The advantage of relating a company’s bad debt experience to its accounts receivable is that this approach Gives a reasonable correct statement of receivables in the balance sheet Relates bad debts expense to the period of sale Is the only generally accepted method for valuing accounts receivable Makes estimates of uncollectible accounts unnecessary.

Assuming that the ideal measure of short-term receivables in the balance sheet is the discounted value of the cash to be received in the future, failure to follow this practice usually does not make the balance sheet misleading because Most short-term receivables are not interest bearing The allowance for uncollectible accounts includes a discount element The amount of the discount is not material Most receivables can be sold to a bank or factor.

An account that would be classified as a current liability is Dividends payable in stock Accounts payable – debit balance Reserve for possible losses on purchase commitments Excess of replacement cost over LIFO cost of basic inventory temporarily liquidated.

Which of the following statements is not valid as it applies to inventory costing methods? If inventory quantities are to be maintained, part of the earnings must be invested (plowed back) in inventories when FIFO is used during a period of rising prices. LIFO tends to smooth out the net income pattern, since it matches current cost of goods sold with current revenue, when inventories remain at constant quantities. When a firm using the LIFO method fails to maintain its usual inventory position (reduces stock on hand below customary levels), there may be a matching of old costs with current revenue. The use of FIFO permits some control by management over the amount of net income for a period through controlled purchases, which is not true with LIFO.

Jamison Corporation’s inventory cost on its statement of financial position was lower using first-in, first-out than last-in, first-out. Assuming no beginning inventory, what direction did the cost of purchases move during the period? Up Down Steady Cannot be determined.

If inventory levels are stable or increasing an argument that favors the FIFO method as compared to LIFO is Income taxes tend to be reduced in periods of rising prices Cost of goods sold tends to be stated at approximately current cost in the income statement Cost assignments typically parallel the physical flow of the goods Income tends to be smoothed as prices change over time.

An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation is FIFO LIFO Conventional retail Weighted average.

When inventory declines in value below original (historical) cost, and this decline is considered other than temporary, what is the maximum amount that the inventory can be valued at? Sales price net of conversion costs Net realizable value Historical cost Net realizable value reduced by a normal profit margin.

Which of the following inventory cost flow methods involves computations based on broad inventory pools of similar items? Regular quantity of goods LIFO Dollar-value LIFO Weighted average Moving average.

When the allowance method of recognizing bad debt expense is used, the entries at the time of collection of an account previously written off would Increase net income Have no effect on total current assets Increase working capital Decrease total current liabilities.

The original cost of an inventory item is above the replacement cost. The replacement cost is below the net realizable value less the normal profit margin. Under the lower of cost or market method the inventory item should be priced at its Original cost Replacement cost Net realizable value Net realizable value less the normal profit margin.

Liquidity is the ability To increase net assets through regular operations To generate cash from sources other than regular operations To convert existing assets into cash Of financial statement users to predict a company’s cash flows.

Liquidity ratios measures the Operating success of a company over a period of time The ability of a company to survive over a long period of time The short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash The number of times interest is earned.

Working capital is a measure of Financial flexibility Liquidity. Rentabilidade. Solvency.

A common measure of liquidity is Return on assets. Accounts receivable turnover. Profit margin. Debt to equity.

The net realizable value of receivables is calculated as the face value of the receivables less adjustments for Credit sales Actual uncollected amounts adjusted for purchase discounts. Bad debts already written off. Estimated uncollectible accounts A successful discount retail store such as Wal-Mart would probably have A low inventory turnover A high inventory turnover Zero profit margin Low volume.

Use the following information to answer questions.

Acme Auto Supplies.

December 31, 2007.

Cash $ 60,000 Accounts Payable $ 65,000.

Prepaid Insurance 40,000 Salaries Payable 10,000.

Accounts Receivable 50,000 Mortgage Payable 90,000.

Inventory 70,000 Total Liabilities $165,000.

Land held for investment 80,000.

Building $100,000 Common Stock $120,000.

Less Accumulated Retained Earnings 250,000.

Depreciation (30,000) 70,000 Total stockholders’ equity $370,000.

Trademark 70,000 Total Liabilities and.

Total Assets $535,000 Stockholders’ Equity $535,000.

List and briefly define the methods of accounting for investments under SFAS No. 115“Accounting for Certain Investments in Debt and Equity Securities” (FASB ASC 320). Define and discuss the two methods of estimating bad debts on receivables. Why are cost flow assumptions used to determine inventory valuations? Define and explain the rationale for using each of the cost flow assumptions.

Obtain a company’s financial statements and ask the students to compute the following: Working capital Current ratio Acid test ratio Cash flow from operations to current liabilities ratio Accounts receivable turnover Inventory turnover.

When a closely held corporation issues preferred stock for land, the land should be recorded at the Total par value of the stock issued Total book value of the stock issued Appraised value of the land Total liquidating value of the stock issued.

A principal objection to the straight-line method of depreciation is that it Provides for the declining productivity of an aging asset Ignores variations in the rate of asset use Tends to result in a constant rate of return on a diminishing investment base Gives smaller periodic write-offs than decreasing charge methods.

Property, plant, and equipment are conventionally presented n the balance sheet at Replacement cost less accumulated depreciation Historical cost less salvage value Original cost adjusted for general price level changes Acquisition cost less depreciated portion thereof.

As generally used in accounting, depreciation Is a process of asset valuation for balance sheet purposes Applies only to long-lived intangible assets Is used to indicate a decline in market value of a long-lived asset Is an accounting process that allocates long-lived asset cost to accounting periods.

Lyle, Inc., purchased certain plant assets under a deferred payment contract on December 31, 2011. The agreement was to pay $20,000 at the time of purchase and $20,000 at the end of each of the next five years. The plant assets should be valued at The present value of a $20,000 ordinary annuity for five years $120,000 $120,000 less imputed interest $120,000 plus imputed interest.

For income statement purposes, depreciation is a variable expense if the depreciation method used for book purposes is Units of production Straight line Sum-of-the-year’s-digits Declining balance.

A method that excludes salvage value from the base for the depreciation calculation is Straight line Sum-of-the-year’s digits Double-declining balance Productive output.

When a company purchases land with a building on it and immediately tears down the building so that the land can be used for the construction of a plant, the cost incurred to tear down the building should be Expensed as incurred Added to the cost of the plant Added to the cost of the land Amortized over the estimated time period between the tearing down of the building and the completion of the plant.

A machine with a four-year estimated useful life and an estimated 15 percent salvage value was acquired on January 1, 2010. On December 31, 2012, the accumulated depreciation using the sum-of-year’s digits method would be (Original cost less salvage value) multiplied by 9/10 Original cost multiplied by 9/10 Original cost multiplied by 9/10 less total salvage value (Original cost less salvage value) multiplied by 1/10.

The theoretical justification for reporting depreciation expense is Depreciation expense represents a decrease in the value of the asset that has occurred during the accounting period. Depreciation expense represents the impairment of the asset that has occurred during the accounting period. Depreciation expense represents the unrealized loss that has been incurred by using the asset during the accounting period. Depreciation expense represents the allocation of the historical cost of the asset that has been applied to the accounting period.

A company using the group depreciation method for its delivery trucks retired one of its delivery trucks due to damage before the average service life of the group was reached. An insurance recovery was received. The net book value of these group asset accounts would be decreased by the Original cost of the truck Original cost of the truck less the insurance recovery received Original cost of the truck less depreciation on the truck to the date of retirement Insurance recovery received.

When equipment is retired, accumulated depreciation is debited for the original cost less any residual recovery under which of the following depreciation methods?

Recognizing depletion expense is an example of the accounting process of.

A donated plant asset for which the fair value has been determined, and for which incidental costs were incurred in acceptance of the asset, should be recorded at an amount equal to its Incidental costs incurred Fair value and incidental costs incurred Book value on books of donor and incidental costs incurred Book value on books of donor.

List the objectives of accounting for property, plant and equipment. Describe how cost is assigned to individual assets when they are acquired in a lump-sum group purchase. Discuss the three approaches to allocating fixed overhead to a self-construction project. Discuss the issue of allocating interest to self construction projects. That is, when should interest be allocated and how much interest should be allocated? Explain the concept of commercial substance originally outlined in SFAS No. 158. How did SFAS No. 116, now FASB ASC 605-10-15-3, change the accounting for donated assets? Discuss the factors comprising the depreciation process. Discuss the distinction between capital and revenue expenditures for long-term assets. Define and discuss accounting for asset retirement obligations under SFAS No. 14FASB ASC 410-20. Discuss the guidelines for accounting for property, plant and equipment outlined in IAS No. 16. How does IAS no. 23 define borrowing costs? Discuss accounting for the impairment of assets as outlined in IAS No. 36.

Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the Investor sells the investment Investee declares a dividend Investee pays a dividend Earnings are reported by the investee in its financial statements.

Pence Corporation, which accounts for its investments in the common stock of Walsh Company by the equity method, should ordinarily record a dividend received from Walsh as An addition to the carrying value of the investment Dividend revenue A reduction of the carrying value of the investment Revenue from affiliate.

On January 15, 2002, a corporation was granted a patent on a product. On January 2, 2010, to protect its patent, the corporation purchased a patent on a competing product the originally was issued on January 10, 2008. Because of its unique plant, the corporation does not feel the competing patent can be used in producing a product. The cost of the competing patent should be Amortized over a maximum period of 17 years Amortized over a maximum period of 13 years Amortized over a maximum period of 9 years Expensed in 2010.

Pacer Company purchased 300 of the 1, 000 outstanding shares of Queen Company’s common stock for $80,000 on January 2, 2008. During 2009, Queen Company declared dividends of $8,000 and reported earnings for the year of $20,000.

If Pacer Company uses the equity method of accounting for its investment in Queen Company, its Investment in Queen Company account at December 31, 2009 should be.

Refer to the facts in problem (4). If Pacer Company uses the lower of cost or market method of accounting for its investment in Queen Company, and the value of its investment hasn’t changed, its Investment in Queen Company account on December 31, 2009, should be $100, 000 $88,000 $80,000 $73,600.

A large, publicly held company developed and registered a trademark during 2010. The cost of developing and registering the trademark should be accounted for by Charging it to an asset account that should not be amortized Expensing it as incurred Amortizing it over 25 years if in accordance with management’s evaluation Amortizing it over its useful life or 17 years, whichever is shorter.

Goodwill should be written off As soon as possible against retrained earnings When there is evidence that its carrying value has been impaired By systematic charges against retained earnings over the period benefited, but not more than 40 years By systematic charges to expense over the period benefited, but not more than 40 years.

A net unrealized loss on a company’s long-term portfolio of available for sale securities should be reflected in the current financial statements as An extraordinary item shown as a direct reduction from retained earnings A current loss resulting from holding marketable equity securities A footnote or parenthetical disclosure only A component of other comprehensive income.

Changes in the fair value of a long-term available for sale equity securities portfolio should be reported as a component of Other comprehensive income Noncurrent assets Noncurrent liabilities Net income.

Cash dividends declared out of current earnings are distributed to an investor. How will the investor’s investment account be affected by those dividends under each of the following accounting methods?

Fair Value Method Equity Method.

Decrease No effect Decrease Decrease No effect Decrease No effect No effect.

An activity that would be expensed currently as research and development costs is the Testing in search for or evaluation of product or process alternatives Adaptation of an existing capability to a particular requirement or customer’s need as a part of continuing commercial activity Legal work in connection with patent applications or litigation, and the sale or licensing of patents Engineering follow-through in an early phase of commercial production.

Should the following fees associated with the registration of an internally developed patent be capitalized?

Which of the following assets acquired in 2010 are amortizable?

A purchased patent has a remaining life of 15 years. It should be Expensed in the year of acquisition Amortized over 15 years regardless of its useful life Amortized over its useful life if less than 15 years Amortized over 40 years.

Which of the following amounts incurred in connection with a trademark should be capitalized?

Cost of a Registration.

Successful defense fees.

Zink Company owns 32% of Ace Company’s outstanding voting stock. Zink Company normally should account for its investment in Ace Company using the Fair value method. Cost method. Consolidation procedure. Equity method.

An investor purchased a bond as a long-term investment on January 1. Annual interest was received on December 31. The investor’s interest income for the year would be lowest if the bond was purchased at A discount A premium Par Face value.

The theoretical justification for expensing research and development (R&D) cost as it is incurred is based on which of the following arguments? R&D costs provide no future benefits, thus it does not meet the definition of an asset R&D costs are incurred to generate current period revenue, thus the matching concept requires that it be expensed as incurred. Whether R&D costs that have been incurred will provide future benefit is uncertain, thus it does not meet the definition of an asset. Since R&D costs have been incurred during the current period, they meet the definition of an expense.

When a patent is successfully defended in court, the cost of the lawsuit Should be expensed as incurred because it is a period cost. Should be added to the cost of the patent and depreciated over the remaining useful life of the patent. Should be added to the cost of the patent which is then expensed as a period cost. Has already been expensed so there is no further action to take.

Goodwill is an intangible asset That has a definite life and its cost should be amortized over its useful life. That is recorded when the company has projected earnings in excess of earnings expected for an investment in a similar company in the same industry. That is reviewed for impairment when circumstances indicate that impairment may have occurred. That is reviewed annually to determine whether impairment has occurred.

A trading security is measured at fair value on the balance sheet date and reported as A current asset, and changes in fair value are reported in earnings as unrealized gains and losses. A current asset, and changes in fair value are reported in earnings as realized gains and losses. Either a current or noncurrent asset depending on whether they meet the definition of a current asset. A current asset, and changes in fair value are reported in accumulated other comprehensive income as unrealized gains and losses.

Current accounting for an available-for-sale (AFS) security is consistent with The financial capital maintenance concept of income because AFS security unrealized gains and losses are reported in earnings. The financial capital maintenance concept of income because AFS security unrealized gains and losses are reports in other comprehensive income. The physical capital maintenance concept of income because AFS security unrealized gains and losses are reported in earnings. The physical capital maintenance concept of income because AFS security unrealized gains and losses are reported in other comprehensive income.

The physical capital maintenance concept of income would require that an investment in the common stock of another entity be Reported in the balance sheet at historical cost and that only realized gains and losses be reported in earnings. Reported in the balance sheet at historical cost and that unrealized gains and losses be reported in earnings. Reported in the balance sheet at fair value and that unrealized gains and losses be reported in earnings. Reported in the balance sheet at fair value and that unrealized gains and losses be reported in other comprehensive income.

The economic concept of income would require that an investment in the common stock of another entity be Reported in the balance sheet at historical cost and that only realized gains and losses be reported in earnings. Reported in the balance sheet at historical cost and that unrealized gains and losses be reported in earnings. Reported in the balance sheet at fair value and that unrealized gains and losses be reported in earnings. Reported in the balance sheet at fair value and that unrealized gains and losses be reported in other comprehensive income.

Under the fair value option, an investment in the common stock of another entity will be Reported as a current asset Reported as a noncurrent asset Reported as either a current or noncurrent asset depending on managerial intent. Reported as a current asset only if it was not previously reported as an equity method investment.

When a company reports goodwill in its balance sheet, we know that It was internally generated because the company has earnings in excess of those of other companies in the industry. The company purchased it. The company will be reporting amortization expense for the goodwill. The company will not be reporting an impairment loss for the goodwill.

How are income and balance sheet values determined under the equity method? Discuss accounting for equity securities under the cost method. Discuss accounting for equity securities under the SFAS No. 115 now contained at FASB ASC 320. Summarize the accounting requirements for investments in equity securities. That is, what methods are available and when is each method appropriate? Discuss the use of the fair value option originally described in SFAS No. 159 now contained at FASB ASC 825-10. Discuss accounting for investments in debt securities. What is an intangible asset? How is the cost of an intangible asset amortized? What is goodwill? How is goodwill written off under the provisions of SFAS No. 142 now FASB ASC 350? Define research and development. How are research and development costs recorded How does IAS No 39 define fair value?

A loss from early extinguishment of debt, if material, should be reported as a component of income After cumulative effect f accounting changes and after discontinued operations of a segment of a business After cumulative effect of accounting changes and before discontinued operations of a segment of a business Income from continuing operations Before cumulative effect of accounting changes and before discontinued operation s of a segment of a business.

Unamortized debt discount should be reported on the balance sheet of the issuer as A direct deduction from the face amount of the debt A direct deduction from the present value of the debt A deferred charge Part of the issue costs.

An example of an item that is not a liability is Dividends payable in stock Advances from customers on contracts Accrued estimated warranty costs The portion of long-term debt due within one year.

If bonds are issued initially at a discount and the straight-line method of amortization is used for the discount, interest expense in the earlier years will be Greater than if the compound interest method were used The same as if the compound interest method were used Less than if the compound interest method were used Less than the amount of the interest payments.

Cole Manufacturing Corporation issued bonds with a maturity amount of $200,000 and a maturity 10 years from date of issue. If the bonds were issued at a premium, this indicates that The yield (effective or market) rate of interest exceeded the nominal (coupon) rate The nominal rate of interest exceeded the yield rate The yield and nominal rates coincided No necessary relationship exists between the two rates.

“Trading on the equity” (financial leverage) is likely to be a good financial strategy for stockholders of companies having Cyclical high and low amounts of reported earnings Steady amounts of reported earnings Volatile fluctuation in reported earnings over short periods of time Steadily declining amounts of reported earnings.

Theoretically, a bond payable should be reported at the present value of the interest discounted at Stated interest rate for both principal and interest Effective interest rate for both principal and interest Stated interest rate for principal and effective interest rate for interest Effective interest rate for principal and stated interest rate for interest.

A threat of expropriation of assets that is reasonably possible, and for which the amount of loss can be reasonably estimated, is an example of a (an) Loss contingency that should be disclosed, but not accrued Loss contingency that should be accrued and disclosed Appropriation of retained earnings against which losses should be charged General business risk which should not be accrued and need not be disclosed.

When it is necessary to impute an interest rate in connection with a note payable, the rate should be Two-thirds of the prime rate effective at the time the obligation is incurred The same as that used in the GNP Implicit Price Deflator At least equal to the rate at which the debtor can obtain financing of a similar nature from other sources at the date of the transaction As near zero as can be justified.

Taft Company sells Lee Company a machine, the usual cash price of which is $10,000, in exchange for an $11,800 non-interest-bearing note due three years from date. If Taft records the note at $10,000, the overall effect will be A correct sales price and correct interest revenue A correct sales price and understated interest revenue An understated sales price and understated interest revenue An overstated interest price and understated interest revenue.

In the situation described in problem 10, if Lee records the asset and note at $11,800, the overall effect will be A correct acquisition cost and correct interest expense A correct acquisition cost and understated interest expense An understated acquisition cost and understated interest expense An overstated acquisition cost and understated interest expense.

How would the amortization of premium bonds payable affect each of the following?

Carrying value of.

Increase Decrease Increase Increase Decrease Decrease Decrease Increase.

For a trouble debt restructuring involving only modification of terms, it is appropriate for a debtor to recognize a gain when the carrying amount of the debt Exceeds the total future cash payments specified by the new terms Is less than the total future cash payments specified by the new terms Exceeds the present value specified by the new terms Is less than the present value specified by the new terms.

How should the value of warrants attached to a debt security be account for? No value assigned A separate portion of paid-in capital An appropriation of retained earnings A liability.

For the issuer of a 10-year term bond, the amount of amortization using the interest method would increase each year if the bond was sold at a.

Gain contingencies are usually recognized in the income statement when Realized Occurrence is reasonably possible and the amount can be reasonably estimated Occurrence is probable and the amount can be reasonably estimated The amount can be reasonably estimated.

An estimated loss from a loss contingency should be accrued when It is probable at the date of the financial statements that a loss has been incurred and the amount of the loss can be reasonably estimated The loss has been incurred by the date of the financial statements and the amount of the loss may be material It is probable at the date of the financial statements that a loss has been incurred and the amount of the loss may be material It is probable that a loss will be incurred in a future period and the amount of the loss can be reasonably estimated.

When the issuer of bonds exercises the call provision to retire the bonds, the excess of the cash paid over the carrying amount of the bonds should be recognized separately as a (an) Extraordinary loss Extraordinary gain Loss from continuing operations Loss from discontinued operations.

A two-year note was issued in an arm’s-length transaction at face value solely for cash at the beginning of the year. There were no other rights or privileges exchanged. The interest rate is specified at 10 percent per year. Principal and interest are payable at maturity. The prevailing rate of interest for a loan of this type is 15 percent per year. What annual interest rate should be used to record interest expense for this year and next year?

This year Next Year.

10 percent 15 percent 10 percent 10 percent 15 percent 10 percent 15 percent 15 percent.

The interest rate used to calculate the cash interest payments by the issuer of bonds is The market rate of interest The effective interest rate The stated interest rate Equal to the actual interest expense rate.

Ace Corporation has a debt to total assets ratio of 65%. This tells the user of Ace’s financial statements Ace is getting a 35% return on its assets There is a risk Ace cannot pay its debts as they come due 65% of the assets are financed by the stockholders Ace should issue more debt to reduce its risk.

Trading on the equity (leverage) refers to the Amount of working capital Amount of capital provided by owners Use of borrowed money to increase the return to owners Number of times interest is earned.

The current accounting treatment for convertible debt is to treat it as straight debt. This treatment can be defended on what basis? Convertible debt is a complex financial instrument. Convertible debt comprises two financial instruments – a debt instrument and the option to convert. The debt instrument and the option to convert are not separable. The option to convert is equity.

XYZ Company’s yearend is December 31, 20×1 and its financial statements are issued in the following March. On January 24, 20×2. A 10 year note payable came due and was paid by issuing XYZ common stock to the creditor. In its December 31, 20×1 balance sheet, XYZ should Report the note as a current liability because it was due on January 24, 20×2 – only 24 days after the year end. Report the note as a long-term liability because it was not paid off with a current asset or replaced by another current liability. Report the note as a long-term liability because it was extinguished (paid off) on January 24, 20×2 – only 24 days after the year end. Report the note as a long-term liability because it was a 10 year note.

A zero coupon bond is different from a typical bond issue because The investor can clip the coupons and get paid for the periodic interest on the bond while a typical bond does not have coupons. It is reported in the balance sheet net of the discount on the bond. The zero coupon bond’s deep discount is reported as an asset and a typical bond that is issued at a discount is reported net of the discount. It does not pay any periodic interest while the typical bond does.

An unearned revenue is an example of a(an) Deferred credit. Accrued liability. Customer billing that takes place before a job is finished. Accounts receivable.

A deferred credit meets the definition of a liability because It is a probable future sacrifice of assets as the result of a past transaction or event. It is a present obligation to transfer assets to another entity. It is an accrual representing an obligation to pay money in the future. It is a present obligation to provide services to another entity.

The physical capital maintenance concept of income would require that a company’s bonds payable be Reported in the balance sheet at their amortized issue price and that changes in their market values be reported in earnings. Reported in the balance sheet at their amortized issue price and that changes in their market values not be reported in earnings. Reported in the balance sheet at their fair market values and that changes in their market values be reported in earnings. Reported in the balance sheet at their fair market values and that changes in their market values be reported in other comprehensive income.

ABC Company has a note payable that is due six months after its year end. Under which of the following conditions will ABC be able to classify the note as a long term debt. ABC cannot classify the note as long term because it is due within the current operating cycle or one year, whichever is longer. ABC can classify the note as long term because it is due next year. ABC can classify the note as long term because management intends to refinance it with long term debt and has an agreement to do so with a qualified creditor. ABC can classify the note as long term because it is a 10 year note and management intends to pay the maturity value at the end of the 10 year period.

Current accounting treatment for gain contingencies is different from the accounting treatment for loss contingencies. Which accounting concept is this differential concept consistent with? Conservatism Materiality Full disclosure Revenue recognition.

In general, derivative instruments are Not reported in a company’s balance sheet because their impact on the company is not yet known.. Reported in the balance sheet at fair value and changes in their fair value are reported in earnings. Reported in the balance sheet at historical cost and changes in their fair value are reported in earnings. Reported in the balance sheet at fair value and changes in their fair value are reported in other comprehensive income.

Under a troubled debt restructuring that results in a modification of terms the debtor will report interest expense when The debtor reports a gain on restructuring. The future cash flows under the restructuring agreement are less than the company’s obligation at the date the restructuring takes place. Always because the troubled debtor has a new agreement that obligates the company to make payments in the future. The debtor reports no gain on restructuring.

List and discuss five factors that may be employed to determine if a particular financial instrument is a debt or equity security. Discuss the definition and the proper accounting for mandatorily redeemable preferred stock. Discuss the four basic reasons why a corporation may wish to issue debt rather than equity securities Define the following terms: Mortgage bonds Debenture bonds Explain how the selling price of a bond is determined. What is a zero coupon bond? Discuss accounting for zero-coupon bonds. Discuss the difference between the straight-line and the effective interest methods of bond premium or discount amortizations. List the three methods of accounting for bonds refunding. Under current GAAP, how are Discuss the factors that might motivate corporate management to decide to issue convertible debt. Discuss accounting for long-term notes payable as originally described in APB Opinion No. 21. Discuss accounting for contingencies What is a derivative? Describe the accounting treatment for fair value and cash flow hedges required by SFAS No. 133. Define the following terms: Forward Future Option Swap Hybrid What is a troubled debt restructuring? How is a troubled debt restructuring accomplished? Obtain the financial statements of a company and ask the students to compute the: Long-term debt to assets ratio Interest coverage ratio Debt service coverage ratio How are compound financial instruments accounted for under IAS No. 32?

According to IAS No. 39, when are financial liabilities recognized?

With respect to the difference between taxable income and pretax accounting income, the tax effect of the undistributed earnings of a subsidiary included in consolidated income should normally be Accounted for as a timing difference Accounted for as a permanent difference Ignored because it must be based on estimates and assumptions Ignored because it cannot be presumed that all undistributed earnings of a subsidiary will be transferred to the parent company.

Income tax allocation procedures are not appropriate when An extraordinary loss will cause the amount of income tax expense to be less than the tax on ordinary net income An extraordinary gain will cause the amount of income tax expense to be greater than the tax on ordinary net income Differences between net income for tax purposes and financial reporting occur because tax laws and financial accounting principles do not concur on the items to be recognized as revenue and expense Differences between net income for tax purposes and financial reporting occur that will not reverse.

Which of the following would cause a deferred tax expense? Writedown of goodwill due to impairment Use of equity method where undistributed earnings of a 30 percent owned investee are related to probable future dividends Premiums paid on insurance carried by company (beneficiary) on its officers or employees Income is taxed at capital gains rates.

Differences between taxable income and pretax accounting income arising from transactions that, under applicable tax laws and regulations, will not be offset by corresponding differences or “turn around” in future periods is a definition of Permanent differences Timing differences Intraperiod tax allocation Interperiod tax allocation.

The tax effect of a difference between taxable income and pretax accounting income attributable to losses of a subsidiary is normally recognized for Neither carrybacks nor carryforwards Both carrybacks and carryforwards Carrybacks but not carryforwards Carryforwards but not carrybacks.

Which of the following is not affected by tax allocation within a period? Income before extraordinary items Extraordinary events Adjustments of prior periods Operating revenues.

Under the comprehensive deferred interperiod method of tax allocation, deferred taxes are determined on the basis of Tax rates in effect when the timing differences originate without adjustment for subsequent changes in tax rates Tax rates expected to be in effect when the items giving rise to the timing differences reverse themselves Net valuations of assets or liabilities Averages determined on an industry-by-industry basis.

The accounting recognition of the benefit from a tax loss carryforward in most situations should be reported as A reduction of the loss in the year of the loss with an appropriate valuation allowance A prior period adjustment in whichever year the benefit is realized An extraordinary item in the year in which the benefit is realized An item on the retained earnings statement, not the income statement.

Intraperiod tax allocation arises because Items included in the determination of taxable income may be presented in different sections of the financial statements Income taxes must be allocated between current and future periods Certain revenues and expenses appear in the financial statements either before or after they are included in taxable income Certain revenues and expenses appear in the financial statements but are excluded from taxable income.

Assuming no prior period adjustments, would the following affect net income?

Income tax Income tax.

A machine with a 10-year useful life is being depreciated on a straight-line basis for financial statement purposes, and over 5 years for income tax purposes under the accelerated recovery cost system. Assuming that the company is profitable and that there are and have been no other timing differences, the related deferred income taxes would be reported in the balance sheet at the end of the first year of the estimated useful life as a Current liability Current asset Noncurrent liability Noncurrent asset.

Smith Corporation owns only 25 percent of the voting stock of Jones Corporation, but exercises significant influence over its operating and financial policies. The tax effect of differences between taxable income and pretax accounting income attributable to undistributed earnings of Jones Corporation should be Accounted for as a timing difference Accounted for as a permanent difference Ignored because it must be based on estimates and assumptions Ignored because Smith holds less than 51 percent of the voting stock of Jones.

A company has four “deferred income tax” accounts arising from timing differences involving (1) current assets, (2) noncurrent assets, (3) current liabilities, and (4) noncurrent liabilities. The presentation of these four “deferred income tax “ accounts in the statement of financial position should be shown as A single net amount A net current and a net noncurrent amount Four accounts with no netting permitted Valuation adjustments of the related assets and liabilities that gave rise to the deferred tax.

A company’s only temporary difference results from using double declining balance depreciation for tax purposes and straight-line depreciation for financial reporting. The company purchases new plant assets each year. If currently enacted tax law will result in a higher tax rate for all future tax years, which accounting approach for deferred taxes will result in the lowest net income for this current year? Nonallocation of deferred taxes. Partial allocation of deferred taxes under the asset/liability method. Comprehensive allocation of deferred taxes under the asset/liability method. Comprehensive allocation of deferred taxes under the deferred method.

Which of the following is not an argument that an advocate of nonallocation of deferred taxes might use to support his/her position? Income taxes result only from taxable income. Income taxes are an expense of doing business and should be treated the same as other expenses of doing business under accrual accounting. Income taxes are not levied on individual items of income or expense. The current provision for income taxes is a better predictor of future cash flows than is income tax expense that includes deferred taxes.

Which of the following is an argument that an advocate of interperiod income tax allocation might use to support his/her position? Income taxes result from taxable income. Income taxes are an expense of doing business and should be treated the same as other expenses of doing business under accrual accounting. Nonallocation of income taxes hides an economic difference between a company that employs tax strategies that reduce current tax payments than one that does not. Income taxes are not incurred in anticipation of future benefits, nor are they expirations of cost to provide facilities to generate revenues.

A net operating loss carryover that occurs in a company’s second year of operations May cause a company to report a tax benefit in the current period income statement. Has no effect on income tax expense of the current period because no taxes are paid. Causes a company to report a deferred income tax liability for taxes that are not paid currently. Results in future taxable amounts.

Which of the following will result in a deferred tax asset? Using the installment sales method for tax purposes, while using point of sale for financial reporting. Reporting an unrealized gain for a trading security. Using accelerated depreciation for tax purposes and straight-line depreciation for financial reporting. Reporting an expected loss on from a lawsuit in the income statement, when it cannot be reported on the tax return until it is actually incurred.

Which of the following will result in a deferred tax liability? A net operating loss carryover. Reporting an unrealized gain for a trading security. Reporting an unrealized gain for an available-for-sale security. Reporting an expected loss on from a lawsuit in the income statement, when it cannot be reported on the tax return until it is actually incurred.

Which of the following causes a permanent difference between taxable income and financial accounting income? The useful life of an asset is 10 years. The asset is depreciated over 7 years for tax purposes. Rent received in advance is taxable upon receipt. A life insurance premium paid by the corporation on a policy that names the corporation as the beneficiary. A penalty paid to a bank when a CD is cashed before its maturity date.

Which of the following approaches to interperiod tax allocation best represents an example of the matching principle? The deferred method of interperiod income tax allocation Discounting deferred income taxes Nonallocation of income taxes The asset/liability method of income tax allocation.

A company that has both short-term deferred tax assets of $22,000, long-term deferred tax liabilities of $36,000, short-term deferred tax liabilities of $51,000 and short-term deferred tax assets of $60,000 should report A current asset for $22,000, a current liability for $36,000, a long-term asset for $60,000, and a long-term liability for $51,000. A current liability for $14,000 and a long-term asset for $9,000. A current asset for $5,000. A current liability for $14,000, a long-term asset for $60,000, and a long-term liability for $51,000.

An increase in the deferred income tax asset valuation allowance Occurs when there is an operating loss carryforward. Has no effect on income tax expense. Occurs when there is an expected increase in future taxable icnome. Increases income tax expense.

What are the objectives of accounting for income taxes? Define the following types of differences between financial accounting income and taxable income: Describe the three types of permanent differences.` List and give examples of the f our types of differences that cause financial accounting income to be either greater than or less than taxable income. Describe the accounting treatment for net operating losses. Discuss the arguments for and against interperiod tax allocation. Discuss the arguments for comprehensive vs. partial allocation of interperiod taxes. Discuss the arguments for and against discounting deferred taxes. Define the following: Deferred method of income tax allocation Asset-liability method of income tax allocation Net-of-tax method Discuss how SFAS No. 109, now FASB ASC 740, changed the accounting for deferred tax assets. Describe the use of the valuation allowance for deferred tax assets. Describe accounting for uncertain tax positions under FIN No. 48, now FASB ASC 740-10-25. Discuss the rationale behind the calculation of a company’s earnings conservatism ratio.

Under the capital method of accounting for leases the excess of aggregate rentals over the cost of leased property should be recognized as revenue of the lessor In increasing amounts during the term of the lease In constant amounts during the term of the lease In decreasing amounts during the term of the lease After the cost of leased property has been fully recovered through rentals.

When measuring the present value of future rentals to be capitalized as part of the purchase price in a lease that is be accounted for as a purchase, identifiable payments to cover taxes, insurance, and maintenance should be Included in the future rentals to be capitalized Excluded from future rentals to be capitalized Capitalized but at a different discount rate and recorded in a different account than future rental payments Capitalized but at a different discount rate and for a relevant period that tends to be different than that for future rental payments.

Equal monthly rental payments for a particular lease should be charged to rental expense by the lessee for which of the following?

Capital lease Operating lease.

In a lease that is recorded as a sales-type lease by the lessor, the difference between the gross investment in the lease and sum of the present values of the components of the gross investment should be recognized as income In full at the lease’s expiration In full at the lease’s inception Over the period of the lease using the interest method of amortization Over the period of the lease using the straight-line method of amortization.

For a six-year capital lease, the portion of the minimum lease payment in the third year applicable to the reduction of the obligation should be Less than in the second year More than in the second year The same as in the fourth year More than in the fourth year.

Based solely upon the following sets of circumstances, indicate below which set gives rise to a sales type or direct financing lease of a lessor:

By end of purchase.

Generally accepted accounting principles require that certain lease agreements be accounted for as purchases. The theoretical basis for this treatment is that a lease of this type Effectively conveys all of the benefits and risks incident to the ownership of property Is an example of form over substance Provides the use of the leased asset to the lessee for a limited period of time Must be recorded in accordance with the concept of cause and effect.

The appropriate valuation of an operating lease on the statement of financial position of a lessee is Zero The absolute sum of the lease payments The present value of the sum of the lease payments discounted at an appropriate rate The market value of the asset at the date of the inception of the lease.

A six-year-capital lease entered into on December 31, 2008, specified equal minimum annual lease payments due on December 31, 2010. Minimum payment applicable to which of the following increased over the corresponding December 31, 2010, minimum payment?

Interest Expense Liability.

Office equipment recorded under a capital lease containing a bargain purchase option should be amortized Over the period of the lease using the interest method of amortization Over the period of the lease using the straight-line method of amortization In a manner consistent with the lessee’s normal depreciation policy for owned assets In a manner consistent with the lessee’s normal depreciation policy for owned assets except that the period of amortization should be the lease term.

What is the primary accounting issue for lessees? Recording interest expense on the lease obligation. Determining whether the lease meets the 90% of fair value test. Off-balance sheet financing. The measurement of the leased asset under a capital lease.

What is the primary accounting issue for lessors? Off-balance sheet financing. Revenue recognition and expense allocation over the lease term. Treating the lease in the same manner as the lessee does. Determining whether the lease is a sales-type lease or a direct financing lease.

For the lessor to recognize a lease as a sales-type lease, the following must occur. At least one of the capital lease criteria is met, at least one of the certainty criteria is met, and there is a manufacturer or dealer’s profit. At least one of the capital lease criteria is met, both certainty criteria are met, and there is a manufacturer or dealer’s profit. More than one of the capital lease criteria are met, both certainty criteria are met, and there is a manufacturer or dealer’s profit. Only one of the capital lease criteria is met, both certainty criteria are met, and there is a manufacturer or dealer’s profit.

A net operating loss carryover that occurs in a company’s second year of operations May cause a company to report a tax benefit in the current period income statement. Has no effect on income tax expense of the current period because no taxes are paid. Causes a company to report a deferred income tax liability for taxes that are not paid currently. Results in future taxable amounts.

For a sales-type lease, the net investment is equal to The present value of the minimum lease payments plus executor costs. The net investment minus unearned income. Sales minus the gross profit recognized on the sale. The present value of the gross investment.

When a lease contract does not transfer title to the lessee, there is no bargain purchase option, and the lease term is not at least 75 percent of the estimated useful life of the leased asset. The lessee must classify the lease as an operating lease. The amount of unguaranteed salvage value, if any, determines whether the lease is a capital lease or an operating lease. The interest rate used to determine the present value of the minimum lease payments also determines whether the lease is a capital lease or an operating lease. The lessee must use the greater of the lessor’s rate of return or the lessee’s incremental borrowing rate to determine whether the lease is a capital lease or an operating lease.

When does the lessee report executory costs as an expense? When they are spelled out in the lease agreement. Only when they are incurred by the lessee and the lease is classified as a capital lease. When they are incurred by the lessee. Only when they are incurred by the lessee and the lease is classified as an operating lease.

If the lessor incurs initial direct cost to bring about the lease, when are those costs expensed in total during the first year of the lease term. When the lease is classified as a sales-type lease. When the lease is classified as a direct financing lease. When the lease is classified as an operating lease. Initial direct costs are always expensed during the first year of the lease term.

When a sale and leaseback occurs A gain or loss on the sale of the leased asset is deferred and amortized over the lease term . A gain on sale of the leased asset is deferred and amortized over the lease term. Whether a gain or loss on sale of the leased asset is deferred and amortized over the lease term depends on whether the lease is classified as a capital lease or an operating lease. Both gains and losses are recognized in earnings when the asset is sold.

Which of the following would indicate that the lessee should not classify a lease as a capital lease? The fair value of the leased asset is $100,000 and the present value of the minimum lease payments is $95,000. The lease provides for no unguaranteed salvage value. The lessee has the option to purchase the leased asset in 4 years for $2 when the asset’s salvage value is expected to be $20,000. The asset’s useful life is 20 years, a 4 year lease occurs when the asset is 26 years old.

List four advantages of leasing over the purchase of property for use by a business. Define the following: Capital lease Operating lease List the four criteria for recording a lease transaction as a capital lease. How is the recorded amount of a lessee capital lease determined? What is the difference between a sales-type and a direct financing type of capital lease? What is a leveraged lease? How do lessees and lessors record leveraged leases?

APB Opinion No. 8 set minimum and maximum limits on the annual provision for pension cost. An amount that was always included in the calculation of both the minimum and the maximum limit is Normal cost Amortization of past service cost Interest on unfunded past and prior service costs Retirement benefits paid In accounting for a pension plan, any difference between the pension cost charged to expense and the payments into the fund should be reported as An offset to the liability for prior service cost Accrued or prepaid pension cost An operating expense in this period An accrued actuarial liability.

Benefits under a pension plan that are not contingent upon an employee’s continuing service are Granted under a plan of defined contribution Based upon terminal funding Actuarially unsound Vested.

According to SFAS No. 87, “Employer’s Accounting for Pensions,” gains and losses should be Fully allocated to current and future periods Offset against pension expense in the year of occurrence Allocated if any unrecognized gain or loss at the beginning of the year is in excess of 10 percent of the greater of the projected benefit obligation or the market value of the plan assets Disclosed in a note to the financial statements only.

According to SFAS No. 87, prior service costs should be Charged to retained earnings as a cost relating to the past Amortized over the service period of each employee expected to receive benefits Taken into consideration only by expensing interest on the unfunded amount Recorded in full as a liability at their discounted present value.

According to SFAS No. 87, which of the following is never recorded as a component of annual pension cost? Amortization of the intangible asset recorded as the offset to the minimum pension liability Amortization of prior service cost Amortization of gains and losses Amortization of the transition amount In determining whether to accrue employee’s compensation for future absences, among the conditions that must be met are that the obligation relates to rights that.

No No No Yes Yes No Yes Yes The funded status of a defined benefit pension plan is equal to the Vested benefit obligation minus the fair value of the pension plan assets. Accumulated benefit obligation minus the fair value of the pension plan assets. Projected benefit obligation minus the fair value of the pension plan assets. Projected benefits plus the fair value of the pension plan assets minus employer contributions to the pension plan.

If the projected benefit obligation of a defined benefit pension plan exceeds the fair value of the pension plan assets, the employer must report The difference as a liability in the balance sheet and a corresponding adjustment to the amount of pension expense reported in earnings. The difference as a liability in the balance sheet and a corresponding adjustment to other comprehensive income, net of deferred income taxes . The difference as an asset in the balance sheet and a corresponding adjustment to the amount of pension expense reported in earnings. The difference as an asset in the balance sheet and a corresponding adjustment to other comprehensive income, net of deferred income taxes.

The funded status of a defined benefit pension plan is reported in the balance sheet. As an asset, if the pension plan is underfunded. As a liability, if the pension plan is underfunded. Because it measures the minimum pension plan liability. When it exceeds the projected benefit obligation.

Some theorists argue that the best measure of the employer’s defined benefit pension plan obligation is the accumulated benefit obligation. Since the accumulated benefit obligation is measured using current salaries, it represents the conservative floor for a company’s pension obligation to its employees. It is consistent with the measurement of pension expense. Since the accumulated benefit obligation is measured using future salaries, it represents the conservative floor for a company’s pension obligation to its employees. The accumulated benefit obligation measures the present value of the amounts that employees will receive from the pension plan once they retire. benefits that are not contingent on the employee continuing in the service of the company are Accumulated benefits. Projected benefits. Benefits earned to date. Vested benefits.

The corridor approach Is used to determine how much interest to add to the service cost and amortization of prior service in order to calculate pension expense for the period. Is used to determine the minimum amount of accumulated unamortized net gains or losses that must be amortized during the accounting period. Is used to determine the amount of prior service cost to expense each accounting period. Is use to determine the pension plan’s funded status.

What effect did the requirement to replace the minimum liability requirement with the funded status of a pension plan have for underfunded pension plans? Return on assets decreased. There was no effect on return on assets. The debt-to-Equity ratios increased. Working capital increased.

What effect did the requirement to replace the minimum liability requirement with the funded status of a pension plan have for overfunded pension plans?. Return on assets decreased. There was no effect on return on assets. The debt-to-Equity ratios increased. Return on common stockholders’ equity increased. Which of the following is not a difference between defined benefit pension plans and other postretirement benefits (ORBS) Unlike defined benefit pension plan payments, there is no cap on the amount of OORB benefit to be paid to participants . Unlike defined benefit pension plans, management promises OORB payments in exchange for current services. Unlike defined benefit pension plans, employees do not accumulate additional OORB benefits with each year of service. Unlike defined benefit pension plans, OORBs do not vest.

The expected postretirement benefit obligation (EPBO) is Similar to the defined benefit pension plan’s projected benefit obligation because it is the obligation attributable to employee service rendered to date. Used to calculate the interest component of OORB expense before full eligibility is achieved. Recognized over the life expectancy of the employees when most participants are fully eligible to receive benefits. The actuarial present value of the total benefits expected to be paid assuming full eligibility is achieved.

Discuss the difference between defined benefit and defined contribution pension plans. Discuss the cost approach and benefits approach actuarial funding methods. Define the following components of pension cost: under SFAS No. 87 (FASB ASC 715): Service cost Interest cost Return on plan assets Amortization of unrecognized prior service cost Amortization of gains and losses What four categories of information are required to be disclosed under the provisions of SFAS No. 35 (FASB ASC 960)? Discuss the characteristics that make accounting for other postretirement benefits more difficult than accounting for pensions. What changes in accounting for pensions were required by SFAS No. 158 (FASB ASC 715)?

For a compensatory stock option plan for which the date of grant and measurement date are the same, compensation cost should be recognized in the income statement At the date of retirement Of each period in which services are rendered At the exercise date At the adoption date of the plan.

Payment of a dividend in stock Increases the current ratio Decreases the amount of working capital Increases total stockholders’ equity Decreases book value per share of stock outstanding.

The directors of Corel Corporation, whose $40 par value common stock is currently selling at $50 per share, have decided to issue a stock dividend. The corporation has an authorization for 200,000 shares of common, has issued 110,000 shares of which 10,000 shares are now held as treasury stock, and desires to capitalize $400,000 of the retained earnings balance. To accomplish this, the percentage of stock dividend that the directors should declare is 10 8 5 2.

When a stock dividend is small, for example a 10% stock dividend, Retained earnings is not reduced because the dividend is immaterial . Retained earnings is reduced by the fair value of the stock. Retained earnings is reduced to the par value of the stock. Paid-in capital in excess of par value is unaffected.

The par value method of reporting a treasury stock transaction Will be reported in the balance sheet as a reduction of total stockholders’ equity. Results in no change to total stockholders’ equity. Results in a reduction in the number of shares that are available to be sold to prospective investors. Assumes constructive retirement of the treasury shares.

On December 31, 2010, when the Conn Company’s stock was selling at $36 per share, its capital accounts were as follows.

Capital stock (par value $20,

100,000 shares issued) $2,000,000.

Premium on capital stock 800,000.

Retained Earnings 4,550,000.

If a 100 percent stock dividend were declared and the par value per share remained at.

No entry would need to be made to record the dividend Capital stock would increase to $5,600,000 Capital stock would increase to $4,000,000 Total capital would decrease.

A company has not paid dividends on its cumulative nonvoting preferred stock for 20 years.

Healthy earnings have been reported each year, but they have been retained to support the growth of the company. The board of directors appropriately authorized management to offer the preferred shareholders an exchange of bonds and common stock for all the preferred stock. The exchange is about to be consummated. Which of the following best describes the effect of the exchange on the company?

The statute of limitations applies; hence, cumulative dividends of only seven years need to be paid on the preferred stock exchanged. The company should record an extraordinary gain for income determination purposes to the extent that dividends in arrears do not have to be paid in the exchange transaction. Gain or loss should be recognized on the exchange by the company, and the exchange would have to be approved by the Securities and Exchange Commission. Regardless of the market value of the bonds and common stock, no gain or loss should be recognized by the company on the exchange, and no dividends need to be paid on the preferred stock exchanged.

A restriction of retained earnings is most likely to be required by the Exhaustion of potential benefits of the investment credit Purchase of treasury stock Payment of last maturing series of a serial bond issue Amortization of past service costs related to a pension plan.

A feature common to both stock splits and stock dividends is A reduction in total capital of a corporation A transfer from earned capital to paid-in capital A reduction in book value per share Inclusion in conventional statement of source and application of funds.

Assuming the issuing company has only one class of stock, a transfer from retained earnings to capital stock equal to the market value of the shares issued is ordinarily a characteristic of Either a stock dividend or a stock split Neither a stock dividend nor a stock split A stock split but not a stock dividend A stock dividend but not a stock split.

When a stock option plan for employees is compensatory, the measurement date for determining compensation cost is the Date the option plan is adopted, provided it precedes the date on which the options may first be exercised by less than one operating cycle Date on which the options may first be exercised (if the first actual exercise is within the same operating period) or the date on which a recipient first exercises any of his options First date on which are known both the number of shares than an individual employee is entitled to receive and the option or purchase price, if any Date each option is granted.

As a minimum, how large in relation to total outstanding shares may a stock distribution be before it should be accounted for as a stock split instead of a stock dividend? No less than 2 to 5 percent No less than 10 to 15 percent No less than 20 to 25 percent No less than 45 to 50 percent.

The dollar amount of total stockholders’ equity remains the same when there is a (an) Issuance of preferred stock in exchange for convertible debentures Issuance of nonconvertible bonds with detachable stock purchase warrants Declaration of a stock dividend Declaration of a cash dividend.

A company with a substantial deficit undertakes a quasi-reorganization. Certain assets will be written down to their present fair market value. Liabilities will remain the same. How would the entries to record the quasi-reorganization affect each of the following?

Contributed Capital Retained Earnings.

Increase Decrease Decrease No effect Decrease Increase No effect Increase.

What is the most likely effect of a stock split on the par value per share and the number of shares outstanding?

Par Value Number of shares.

Per share outstanding.

Decrease Increase Decrease No effect I ncrease Increase No effect No effect.

Gilbert Corporation issued a 40percent stock split-up of its common stock that had a par value of $10 before and after the split-up. At what amount should retained earnings be capitalized for the additional shares issued? There should be no capitalization of retained earnings Par value Market value on the declaration date Market value on the payment date.

How would the declaration and subsequent issuance of a 10 percent stock dividend by the issuer affect each of the following when the market value of the shares exceeds the par value of the stock?

Common Stock Additional Paid-in Capital.

No effect No effect No effect Increase Increase No effect Increase Increase.

A company with a $2,000,000 deficit undertakes a quasi-reorganization on November 1, 2010. Certain assets will be written down by $400, 000 to their present fair market value. Liabilities will remain the same. Capital stock was $3,000,000 and additional paid-in capital was $1,000,000 before the quasi-reorganization. How would the entries to accomplish these changes on November 1, 2010, affect each of the following?

Capital Stock Total Stockholders’ Equity.

No effect No effect No effect Decrease Decrease Decrease Decrease No effect.

How would a stock split affect each of the following?

Total Stockholders’ Additional.

Assets Equity Paid-in Capital.

Increase Increase No effect No effect No effect No effect No effect No effect Increase Decrease Decrease Decrease.

The purchase of treasury stock Decreases common stock authorized Decreases common stock issued Decreases common stock outstanding Has no effect on common stock outstanding.

The equation, assets = equities, expresses which of the following theories of equity? Proprietary theory. Commander theory. Entity theory. Enterprise theory.

Under the residual equity theory A business is viewed as a social institution. Management is responsible for maximizing the wealth of common stockholders. A manager’s goals are considered as important as those of the common stockholders. Equities are viewed as restrictions on assets..

Under which of the theories of equity is a manager’s goals considered as important as those of the common stockholder. Proprietary theory. Commander theory. Entity theory. Enterprise theory.

Which of the theories of equity is consistent with the definition of equity that is found in Statement of Financial Accounting Concepts 6 ? Proprietary theory. Commander theory. Entity theory. Enterprise theory.

Which of the following securities must be reported as a liability because they have the characteristics of both liabilities and equity, but the liability characteristic is dominant? Redeemable preferred stock. Stock options issued with a debt security . Detachable stock options. Mandatorily redeemable preferred stock.

When a dividend paid to stockholders who own mandatorily redeemable preferred stock, the company must report the dividend As an adjustment to retained earnings in its statement of owners’ equity . As an expense in the income statement. As a reduction to other comprehensive income. In the financing activities section of the statement of cash flows.

When preferred stock is converted to common stock The debt-to-equity ratio decreases. The debt-to-equity ratio increases. The debt-to-equity ratio is unchanged. A gain or loss is reported in earnings for the difference between the fair value of the common stock and the book value of the preferred stock that was converted .

When employees are granted options as part of a compensatory stock option plan, Total compensation is measured using a fair value method. Total compensation is measured using the intrinsic method. Total compensation is measured when the options are in the money. Total compensation is measured using the difference between the strike price and the fair value of the options on the grant date.

Discuss the following theories of equity: Proprietary Entity Fund Commander Enterprise Residual equity What is mandatorily redeemable preferred stock and how is it accounted for under the provisions of SFAS No. 150 (FASB ASC 480-10)? List and discuss four advantages of the corporate form of organization.. Discuss the components of a corporation’s balance sheet capital section. Discuss the following special features of preferred stock: Convertible Call Cumulative Participating.

Redemption How did SFAS No. 123R change accounting for stock options? Define and discuss accounting for stock warrants. Discuss the difference between a stock dividend and a stock split. Include in your discussion, the reasons a company might issue either a stock dividend or a stock split. Define and discuss the two methods of accounting for treasury stock. Obtain the financial statements of a company and ask the students to compute the: Return on common stockholders’ equity. Financial structure ratio.

Consolidated statements are proper for Neely, Inc., Randle, Inc., and Walker, Inc., if Neely owns 80 percent of the outstanding common stock of Randle and 40 percent of Walker; Randle owns 30 percent of Walker. Neely owns 100 percent of the outstanding common stock of Randle and 90 percent of Walker; Neely bought the stock of Walker one month before the balance sheet date and sold it seven weeks later. Neely owns 100 percent of the outstanding common stock of Randle and Walker; Walker is in legal reorganization. Neely owns 80 percent of the outstanding common stock of Randle and 40 percent of Walker; Reeves, Inc., owns 55 percent of Walker.

On October 1, Company X acquired for cash all of the outstanding common stock of Company Y. Both companies have a December 31 year end and have been in business for many years. Consolidated net income for the year ended December 31 should include net income of Company X for3 months and Company Y for 3 months Company X for 12 months and Company Y for 3 months Company X for 12 months and Company Y for 12 months Company X for 12 months, but no income from Company Y until Company Y distributed a dividend.

Arkin, Inc., owns 90 percent of the outstanding stock of Baldwin Company. Curtis, Inc., owns 10 percent of the outstanding stock of Baldwin Company. On the consolidated financial statements of Arkin, Curtis should be considered as A holding company A subsidiary not to be consolidated An affiliate A noncontrolling interest.

A sale of goods, denominated in a currency other than the entity’s functional currency, resulted in a receivable that was fixed in terms of the amount of foreign currency that would be received. Exchange rates between the functional currency and the currency in which the transaction was denominated changed. The resulting gain should be include as a (an) Other comprehensive income Deferred credit Component of income from continuing operations Extraordinary item.

Which of the following is not a consideration in segment reporting for diversified enterprises? Allocation of joint costs Transfer pricing Defining the segments Consolidation policy.

Which of the following is the appropriate basis for valuing fixed assets acquired in a business combination carried out by exchanging cash for common stock? Historic cost Book value Cost plus any excess of purchase price over book value of asset acquired Fair value.

Goodwill represents the excess of the cost of an acquired company over the Sum of the fair values assigned to identifiable assets acquired less liabilities assumed Sum of the fair values assigned to tangible assets acquired less liabilities assumed Sum of the fair values assigned to intangible assets acquired less liabilities assumed Book value of an acquired company.

The theoretically preferred method of presenting noncontrolling interest on a consolidated balance sheet is As a separate item with the deferred credits section As a reduction from (contra to) goodwill from consolidation, if any By means of notes or footnotes to the balance sheet As a separate item within the stockholders’ equity section.

Meredith Company and Kyle Company were combined in an acquisition transaction. Meredith was able to acquire Kyle at a bargain price. The sum of the market or appraised values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Meredith. After revaluing noncurrent assets to zero there was still some of the bargain purchase amount remaining (formerly termed negative goodwill). Proper accounting treatment by Meredith is to report the amount as An extraordinary item Part of current income in the year of combination A deferred credit and amortize it Paid-in capital.

When translating foreign currency financial statements, which of the following accounts would be translated using current exchange rates?

Property, Plant, and Inventories.

Equipment carried at cost.

In financial reporting for segments of a business enterprise, the operating profit or loss of a segment should include.

Operating costs operating costs.

The profitability information that should be reported for each reportable segment of a business enterprise consists of An operating profit-or-loss figure consisting of segment revenues less traceable costs and allocated common costs An operating profit-or-loss figure consisting of segment revenues less traceable costs but not allocated common costs An operating profit-or-loss figure consisting of segment revenues less allocated common costs but not traceable costs Segment revenues only.

A foreign subsidiary’s function currency is its local currency that has not experienced significant inflation. The weighted average exchange rate for the current year would be the appropriate exchange rate for translating.

Wages expense Customers.

A subsidiary’s functional currency is the local currency that has not experienced significant inflation. The appropriate exchange rate for translating the depreciation on plant assets in the income statement of the foreign subsidiary is the Exit exchange rate Historical exchange rate Weighted average exchange rate over the economic life of each plant asset Weighted average exchange rate for the current year.

In a business combination that is accounted for under the acquisition method the entity that obtains control over one or more businesses and establishes the acquisition date that control was achieved is called the Controlling interest.

Under the acquisition method for a business combination, the cost incurred to effect the business combination, such as finders and legal fees are Considered part of the historical cost of the business. Expensed as incurred. Allocated, along with the purchase price of the acquired company’s stock to the assets of the acquiree company. Deferred until a full accounting of all costs to acquire the acquire company are.

Under which of the theories of equity is a manager’s goals considered as important as those of the common stockholder. Proprietary theory. Commander theory. Entity theory. Enterprise theory.

For a business combination, we measure all assets and liabilities of an acquired company at fair value. Fair value Is an exit value. Is an entry value. Is an appraisal value. Can be either an exit value or an entry value depending on the circumstances.

Under the acquisition method of accounting for a business combination, restructuring costs are Capitalized and amortized over a period not exceeding ten years. Fees paid to lawyers and accountants to bring about the business combination . Costs incurred to effect the business combination. Treated as post acquisition expenses.

Under the acquisition method of accounting for a business combination, goodwill is equal to The acquired company’s ability to generate excess profits . The excess of the cost of the acquisition plus the fair value of the noncontrolling interest over the fair value of the acquiree’s net assets. The excess of the cost of the acquisition over the fair value of the acquiree’s net assets. The excess of the fair value of acquiree’s net assets over the cost of acquisition.

Under the acquisition method of accounting for a business combination, a bargain purchase is Reported as goodwill in the balance sheet. Tested annually for impairment. Reported as a gain in the income statement. Reported as an adjustment to other comprehensive income.

The acquisition method of accounting for a business combination is consistent with Entity theory. Proprietary theory. Parent company theory. Residual interest theory.

Under the acquisition method of accounting for a business combination when the parent company has acquired only 90% of the voting stock of a subsidiary, 10% of the goodwill will be reported in a separate section of the balance sheet because it belongs to the noncontrolling interest . The consolidated balance sheet will report 100% of the value of goodwill. The consolidated balance sheet will report 90% of the value of goodwill. Goodwill will be amortized over its useful life or 40 years whichever comes first.

The noncontrolling interest in a subsidiary is reported in the consolidated balance sheet As an investment. As a liability. At fair value, as determined on the acquisition date. As an element of stockholders’ equity.

List and explain three reasons why businesses combine. Discuss the issues that are to be addressed in an acquisition method business combination effected by an exchange of equity shares. How is the recorded cost determined in an acquisition business combination? What are the two principles that are used to guide the preparation of consolidated financial statements? Explain the concept of control as it applies to recording consolidated financial statement. Discuss the following two theories of consolidation: Entity Patent company Define noncontrolling interest. Historically, how has noncontrolling interest been disclosed on corporate balance sheets According to SFAS No. 131(FASB ASC 280-10-50-20 to 25), what information should be disclosed for each operating segment? How are operating segments defined by SFAS No. 131 (FASB ASC 280-10-50-1)? Discuss the criteria used to determine if an operating segment is a reportable segment. Discuss how foreign currency translation occurs under each of the following methods Current – noncurrent Monetary – nonmonetary Current Temporal How does SFAS No. 52 (FASB ASC 830) define functional currency? What are the two situations in which the local currency would not be the functional currency:? Discuss the difference between translation and remeasurement. Describe the four general procedures involved in the foreign currency translation process when the local currency is defined as the functional currency. How are noncontrolling interested defined in IAS No. 27 and where are they to be disclosed?

Footnotes to financial statements should not be used to Describe the nature and effect of a change in accounting principles Identify substantial differences between book and tax income Correct an improper financial statement presentation Indicate bases for valuing assets.

Assuming that none of the following have been disclosed in the financial statements, the most appropriate item for footnote disclosure is the Collection of all receivables subsequent to year end Revision of employees’ pension plan Retirement of president of company and election of new president Material decrease in the advertising budget for the coming year and its anticipated effect upon income.

The primary responsibility for the adequacy of disclosure in the financial statements and footnotes rests with the Partner assigned to the engagement Auditor in charge of fieldwork Staffman who drafts the statements and footnotes Client.

Which of the following situations would require adjustment to or disclosure in the financial statements? A merger discussion The application for a patent on a new production process Discussions with a customer that could lead to a 40 percent increase in the client’s sales The bankruptcy of a customer who regularly purchased 30 percent of the company’s output.

With respect to disclosure, the unqualified short-form report States that disclosure is adequate in the financial statements including the footnotes thereto States that disclosure is sufficiently adequate to make the statements not misleading States that all material items are disclosed in conformity with the generally accepted accounting principles Implies that disclosure is adequate in the financial statements including the footnotes thereto.

Which of the following should be disclosed in the Summary of Significant Accounting Policies? Composition of plant assets Pro forma effect of retroactive application of an accounting change Basis of consolidation Maturity dates of long-term debt.

An Account Principles Board Opinion was concerned with disclosure of accounting policies. A singular feature of this particular opinion is that it Calls for disclosure of every accounting policy followed by a reporting entity Applies to immaterial items whereas most opinions are concerned solely with material items Applies also to accounting policy disclosures by not-for-profit entities, whereas most opinions are concerned solely with accounting practices of profit-oriented entities Prescribes a rigid format for the disclosure of policies to be reported upon.

Significant accounting policies may not be Selected on the basis of judgment Selected from existing acceptable alternatives Unusual or innovative in application Omitted from financial statement disclosure on the basis of judgment.

The stock of Gates, Inc., is widely held, and the company is under the jurisdiction of the Securities and Exchange Commission. In the annual report, information about the significant accounting policies adopted by Gates should be Omitted because it tends to confuse users of the report Included as an integral part of the financial statements Presented as supplementary information Omitted because all policies must comply with the regulations of the Securities and Exchange Commission.

The basic purpose of the securities laws of the United States is to regulate the issue of investment securities by Providing a regulatory framework in those states which do not have their own securities laws Requiring disclosure of all relevant facts so that investors can make informed decisions Prohibiting the issuance of securities which the Securities and Exchange Commission determines are not of investment grade Channeling investment funds into uses which are economically most important Ensuring that all shareholders have the right to vote in the election of directors.

The Securities and Exchange Commission (SEC) was established in1934 to help regulate the U. S. securities market. Which of the following statements is true concerning the SEC? The SEC prohibits the sale of speculative securities. The SEC regulates only securities offered for public sale. Registration with the SEC guarantees the accuracy of the registrant’s prospectus. The SEC’s initial influence and authority has diminished in recent years as the stock exchanges have become more organized and better able to police themselves. The SEC’s powers are broad with respect to enforcement of its reporting requirements as established in the 1933 and 1934 acts, but narrow with respect to new reporting requirements because these require confirmation by the Congress.

One of the major purposes of federal security regulation is to Establish the qualifications for accountants who are members of the profession Eliminate incompetent attorneys and accountants who participate in the registration of securities to be offered to the public Provide a set of uniform standards and test for accountants, attorneys, and others who practice before the Securities and Exchange Commission Provide sufficient information to the investing public who purchases securities in the marketplace.

Under the Securities Act of 1933, subject to some exceptions and limitations, it is unlawful to use the mails or instruments of interstate commerce to sell or offer to sell a security to the public unless A surety bond sufficient to cover potential liability to investors is obtained and filed with the Securities and Exchange Commission The offer is made through underwriters qualified to offer the securities on a nationwide basis A registration statement has been properly filed with the Securities and Exchange Commission, has been found to be acceptable, and is in effect The Securities and Exchange Commission approves of the financial merit of the offering.

Major, Major, and Sharpe, CPA’s , are the auditors of MacLain industries. In connection with the public offering of $10 million of MacLain securities, Major expressed an unqualified opinion as to the financial statements. Subsequent to the offering, certain misstatements and omissions are revealed. Major has been sued by the purchasers of the stock offered pursuant to the registration statement, which include the financial statements audited by Major. In the ensuing lawsuit by the MacLain investors, Major will be able to avoid liability if The errors and omissions were caused primarily by MacLain It can be shown that at least some of the investors did not actually read the audited financial statements It can prove due diligence in the audit of the financial statements of MacLain MacLain had expressly assumed any liability in connection with the public offering.

A major impact of the Foreign Corrupt Practices Act of 1977 is that registrants subject to the Securities Exchange Act of 1934 are now required to Keep records which reflect the transactions and dispositions of assets and maintain a system of internal accounting controls Provide access to records by authorized agencies of the federal government Records all correspondence with foreign nations Prepare financial statements in accordance with international accounting standards Produce full, fair, and accurate periodic reports on foreign commerce and/or foreign political party affiliations.

The Securities and Exchange Commission’s fraud rule prohibits trading on the basis of inside information of a business corporation’s stock by Officers Officers and directors All officers, directors, and stockholders Officers, directors, and beneficial holders of 10 percent of the corporation’s stock.

A CPA is subject to a criminal ability if the CPA Refuses to turn over the working papers to the client Performs an audit in a negligent manner Willfully omits a material fact required to be stated in a registration statement Willfully breaches the contract with the client.

For interim financial reporting, an inventory loss from a temporary market decline in the first quarter which can reasonably be expected to be restored in the fourth quarter Should be recognized as a loss proportionately in each of the first, second, third, and fourth quarters Should be recognized as a loss proportionately in each of the first, second, and third quarters Need not be recognized as a loss in the first quarter Should be recognized as a loss in the first quarter.

An inventory loss from a market decline occurred in the first quarter that was not expected to be restored in the fiscal year. For interim financial reporting purposes, how would the dollar amount of inventory in the balance sheet be affected in the first and fourth quarters?

First Quarter Fourth Quarter.

Decrease No effect Decrease Increase No effect Decrease No effect No effect.

Footnotes to a company’s financial statements are used to More fully explain certain items in the financial statements. Reflect financial notes personalized by the company’s executive team. Show the detail of salaries of every employee. Justify fraudulent business practices.

The statement that “the financial statements were prepared in accordance with generally accepted accounting principles” is found in the Management letter Management discussion and analysis Footnotes to the balance sheet. Auditor’s report.

According to the disclosure requirements outlined in Statement of Accounting Concepts No. 5, the following is an example supplementary information that should be disclosed because it affects an area that is directly affected by existing FASB Standards Management discussion and analysis. Segment information. Accounting policies. A statement of cash flows.

According to the disclosure requirements outlined in Statement of Accounting Concepts No. 5, the following is an example information that should be disclosed in the notes to financial statements because it is basic to the financial statements Management discussion and analysis. Accounting policies. Segment information. The auditor’s report.

According to the disclosure requirements outlined in Statement of Accounting Concepts No. 5, the following is an example supplementary information that should be disclosed because it affects an area that is directly affected by existing FASB Standards Management discussion and analysis. Segment information. Accounting policies. A statement of cash flows.

According to the disclosure requirements outlined in Statement of Accounting Concepts No. 5, the following is an example information that should be disclosed in the notes to financial statements because it is basic to the financial statements Management discussion and analysis. Accounting policies. Segment information. The auditor’s report.

Norris Company settled a lawsuit in February for an amount that was significantly different from the amount that was originally accrued as an estimate of potential loss. The company’s yearend is December 31 and its financial statements are issued in March. This is an example of A subsequent event that must be disclosed, but because it happened after the balance sheet date no adjustment is needed . A subsequent event that provided evidence of a condition that did not exist at the balance sheet date. A subsequent event that need not be disclosed because it did not occur before the company’s yearend. A subsequent event that provided further evidence of conditions that existed on the balance sheet.

Footnote disclosure that summarizes information that does not meet the measurement and reporting requirements for presentation in a company’s financial statements, but is useful to informed readers, is required in order to meet the concept of Representational faithfulness. Cost/benefit.

A disclaimer of opinion is issued when All informative disclosures have not been made in the financial statements. Circumstances prevent the auditor from performing all audit procedures necessary to comply with generally accepted auditing standards. The financial statements are not prepared in accordance with generally accepted accounting principles. There is a potential going concern issue.

The discrete view of interim reporting Holds that an interim period is a separate accounting period; thus, revenues and expenses should be treated as though they occurred only in one period. Holds that revenues and expenses should be allocated to the various interim periods. Holds that revenues and expenses should be reported as they occur. Holds that an interim period is an integral part of the annual reporting period.

The inclusion of MD&A (Management Discussion and Analysis) in annual reports is required by the.

Which SEC reporting form is the normal registration statement for securities to be sold to the public? Form 10. Form 10-K. Form 10-Q. Declaração de proxy.

The Securities act of 1933 Regulates the trading of securities of publicly held companies . Regulates the initial public sale and distribution of a corporation’s securities. Addresses the personal duties of corporate officers. Specifies information that is to be contained in a company’s annual report.

The Sarbanes-Oxley (SOX) Act of 2002 created the PCAOB. The PCAOB Is primarily responsible for establishing generally accepted accounting principles. Provides legal and expert services to CPA firms when they are involved in class-action law suits. Oversees the conduct of acts that are intended to influence, coerce, manipulate, or mislead a CPA when he/she is preparing a company’s financial statements. Oversees audits of companies whose securities are public traded.

Norris Company settled a lawsuit in February for an amount that was significantly different from the amount that was originally accrued as an estimate of potential loss. The company’s yearend is December 31 and its financial statements are issued in March. This is an example of A subsequent event that must be disclosed, but because it happened after the balance sheet date no adjustment is needed . A subsequent event that provided evidence of a condition that did not exist at the balance sheet date. A subsequent event that need not be disclosed because it did not occur before the company’s yearend. A subsequent event that provided further evidence of conditions that existed on the balance sheet.

Footnote disclosure that summarizes information that does not meet the measurement and reporting requirements for presentation in a company’s financial statements, but is useful to informed readers, is required in order to meet the concept of Representational faithfulness. Cost/benefit.

A disclaimer of opinion is issued when All informative disclosures have not been made in the financial statements. Circumstances prevent the auditor from performing all audit procedures necessary to comply with generally accepted auditing standards. The financial statements are not prepared in accordance with generally accepted accounting principles. There is a potential going concern issue.

The discrete view of interim reporting Holds that an interim period is a separate accounting period; thus, revenues and expenses should be treated as though they occurred only in one period. Holds that revenues and expenses should be allocated to the various interim periods. Holds that revenues and expenses should be reported as they occur. Holds that an interim period is an integral part of the annual reporting period.

The inclusion of MD&A (Management Discussion and Analysis) in annual reports is required by the.

Which SEC reporting form is the normal registration statement for securities to be sold to the public? Form 10. Form 10-K. Form 10-Q. Declaração de proxy.

The Securities act of 1933 Regulates the trading of securities of publicly held companies . Regulates the initial public sale and distribution of a corporation’s securities. Addresses the personal duties of corporate officers. Specifies information that is to be contained in a company’s annual report.

The Sarbanes-Oxley (SOX) Act of 2002 created the PCAOB. The PCAOB Is primarily responsible for establishing generally accepted accounting principles. Provides legal and expert services to CPA firms when they are involved in class-action law suits. Oversees the conduct of acts that are intended to influence, coerce, manipulate, or mislead a CPA when he/she is preparing a company’s financial statements. Oversees audits of companies whose securities are public traded.

List the building blocks to disclosure described in SFAC No. 5. List and discuss the types of information commonly disclosed in the footnotes to corporate financial statements. List and discuss the recognition criteria for the two types of subsequent events. List and discuss the three paragraphs contained in a standard unqualified audit option. List and discuss the circumstances that might cause an auditor to issue each of the four types of audit opinions. What information is required to be included in the MD & A section of the 10-K annual report. (Do not include the information required by item 7a). Define market risk and the types of market risk to be disclosed in item &a of a company’s MD&A. How is the quantitative information about market risk–sensitive instruments to be disclosed according to the SEC? What are the purposes of the letter to stockholders? List and explain the three types of financial analysts. Discuss the general purposes of: The Securities Act of 1933 The Securities Exchange Act of 19 The Foreign Corrupt Practices Act of 1977 Discuss three general provisions of the Sarbanes-Oxley Act. Discuss the general requirements of Sections 404(a) and 404(b) of the Sarbanes-Oxley Act. Discuss the framework for analysis that may be used in the resolution of ethical dilemmas. List the six criteria identified by the Anderson report and are indicative of effective auditor performance. List the four sections of the AICPA Code of Professional Conduct.

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1. Intangible assets derive their value from the right (claim) to receive cash in the future.

2. Internally created intangibles are recorded at cost.

3. Internally generated intangible assets are initially recorded at fair value.

4. Amortization of limited-life intangible assets should not be impacted by expected residual values.

5. Some intangible assets are not required to be amortized every year.

6. Limited-life intangibles are amortized by systematic charges to expense over their useful life.

7. The cost of acquiring a customer list from another company is recorded as an intangible asset.

8. The cost of purchased patents should be amortized over the remaining legal life of the patent.

9. If a new patent is acquired through modification of an existing patent, the remaining book value of the original patent may be amortized over the life of the new patent.

10. In a business combination, a company assigns the cost, where possible, to the identifiable tangible and intangible assets, with the remainder recorded as goodwill.

11. Internally generated goodwill should not be capitalized in the accounts.

12. Internally generated goodwill associated with a business may be recorded as an asset when a firm offer to purchase that business unit has been received.

13. All intangibles are subject to periodic consideration of impairment with corresponding potential write-downs.

14. If the fair value of an unlimited life intangible other than goodwill is less than its book value, an impairment loss must be recognized.

15. If market value of an impaired asset recovers after an impairment has been recognized, the impairment may be reversed in a subsequent period.

16. The same recoverability test that is used for impairments of property, plant, and equipment is used for impairments of indefinite-life intangibles.

17. Periodic alterations to existing products are an example of research and development costs.

18. Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent.

19. Research and development costs are recorded as an intangible asset if it is felt they will provide economic benefits in future years.

20. Contra accounts must be reported for intangible assets in a manner similar to accumu-lated depreciation and property, plant, and equipment.

True False Answers—Conceptual.

21. Which of the following does not describe intangible assets?

They lack physical existence. They are financial instruments. They provide long-term benefits. They are classified as long-term assets.

22. Which of the following characteristics do intangible assets possess?

Physical existence. Claim to a specific amount of cash in the future. Long-lived. Held for resale.

23. Which characteristic is not possessed by intangible assets?

Physical existence. Short-lived. Result in future benefits. Expensed over current and/or future years.

24. Costs incurred internally to create intangibles are.

capitalized. capitalized if they have an indefinite life. expensed as incurred. expensed only if they have a limited life.

25. Which of the following costs incurred internally to create an intangible asset is generally expensed?

Research and development costs. Filing costs. Legal costs. Tudo acima.

26. Which of the following methods of amortization is normally used for intangible assets?

27. The cost of an intangible asset includes all of the following except.

preço de compra. legal fees. other incidental expenses. all of these are included.

28. Factors considered in determining an intangible asset’s useful life include all of the following except.

the expected use of the asset. any legal or contractual provisions that may limit the useful life. any provisions for renewal or extension of the asset’s legal life. the amortization method used.

29. Under current accounting practice, intangible assets are classified as.

amortizable or unamortizable. limited-life or indefinite-life. specifically identifiable or goodwill-type. legally restricted or goodwill-type.

30. Companies should test indefinite life intangible assets at least annually for:

S 31. One factor that is not considered in determining the useful life of an intangible asset is.

uma. salvage value.

b. provisions for renewal or extension.

d. expected actions of competitors.

Which intangible assets are amortized?

33. The cost of purchasing patent rights for a product that might otherwise have seriously competed with one of the purchaser’s patented products should be.

charged off in the current period. amortized over the legal life of the purchased patent. added to factory overhead and allocated to production of the purchaser’s product. amortized over the remaining estimated life of the original patent covering the product whose market would have been impaired by competition from the newly patented product.

34. Broadway Corporation was granted a patent on a product on January 1, 2001. To protect its patent, the corporation purchased on January 1, 2012 a patent on a competing product which was originally issued on January 10, 2008. Because of its unique plant, Broadway Corporation does not feel the competing patent can be used in producing a product. The cost of the competing patent should be.

amortized over a maximum period of 20 years. amortized over a maximum period of 16 years. amortized over a maximum period of 9 years. expensed in 2012.

35. Wriglee, Inc. went to court this year and successfully defended its patent from infringe-ment by a competitor. The cost of this defense should be charged to.

patents and amortized over the legal life of the patent. legal fees and amortized over 5 years or less. expenses of the period. patents and amortized over the remaining useful life of the patent.

36. Which of the following is not an intangible asset?

37. Which of the following intangible assets should not be amortized?

Copyrights Customer lists Perpetual franchises All of these intangible assets should be amortized.

38. When a patent is amortized, the credit is usually made to.

the Patent account. an Accumulated Amortization account. a Deferred Credit account. an expense account.

39. When a company develops a trademark the costs directly related to securing it should generally be capitalized. Which of the following costs associated with a trademark would not be allowed to be capitalized?

Attorney fees. Consulting fees. Research and development fees. Design costs.

40. In a business combination, companies record identifiable intangible assets that they can reliably measure. All other intangible assets, too difficult to identify or measure, are recorded as:

41. Goodwill may be recorded when:

it is identified within a company. one company acquires another in a business combination. the fair value of a company’s assets exceeds their cost. a company has exceptional customer relations.

42. When a new company is acquired, which of these intangible assets, unrecorded on the acquired company’s books, might be recorded in addition to goodwill?

43. Which of the following intangible assets could not be sold by a business to raise needed cash for a capital project?

44. The reason goodwill is sometimes referred to as a master valuation account is because.

it represents the purchase price of a business that is about to be sold. it is the difference between the fair value of the net tangible and identifiable intangible assets as compared with the purchase price of the acquired business. the value of a business is computed without consideration of goodwill and then goodwill is added to arrive at a master valuation. it is the only account in the financial statements that is based on value, all other accounts are recorded at an amount other than their value.

45. Easton Company and Lofton Company were combined in a purchase transaction. Easton was able to acquire Lofton at a bargain price. The sum of the fair values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost to Easton. Proper accounting treatment by Easton is to report the excess amount as.

a gain. part of current income in the year of combination. a deferred credit and amortize it. paid-in capital.

46. Purchased goodwill should.

be written off as soon as possible against retained earnings. be written off as soon as possible as an extraordinary item. be written off by systematic charges as a regular operating expense over the period benefited. not be amortized.

47. The intangible asset goodwill may be.

capitalized only when purchased. capitalized either when purchased or created internally. capitalized only when created internally. written off directly to retained earnings.

48. A loss on impairment of an intangible asset is the difference between the asset’s.

carrying amount and the expected future net cash flows. carrying amount and its fair value. fair value and the expected future net cash flows. book value and its fair value.

49. The recoverability test is used to determine any impairment loss on which of the following types of intangible assets?

Indefinite life intangibles other than goodwill. Indefinite life intangibles. Boa vontade. Limited life intangibles.

50. Buerhle Company needs to determine if its indefinite-life intangibles other than goodwill have been impaired and should be reduced or written off on its balance sheet. The impairment test(s) to be used is (are)

Recoverability Test Fair Value Test.

51. The carrying amount of an intangible is.

the fair value of the asset at a balance sheet date. the asset’s acquisition cost less the total related amortization recorded to date. equal to the balance of the related accumulated amortization account. the assessed value of the asset for intangible tax purposes.

52. Which of the following research and development related costs should be capitalized and depreciated over current and future periods?

Research and development general laboratory building which can be put to alternative uses in the future Inventory used for a specific research project Administrative salaries allocated to research and development Research findings purchased from another company to aid a particular research project currently in process.

53. Which of the following principles best describes the current method of accounting for research and development costs?

Associating cause and effect Systematic and rational allocation Income tax minimization Immediate recognition as an expense.

54. How should research and development costs be accounted for, according to a Financial Accounting Standards Board Statement?

Must be capitalized when incurred and then amortized over their estimated useful lives. Must be expensed in the period incurred. May be either capitalized or expensed when incurred, depending upon the materiality of the amounts involved. Must be expensed in the period incurred unless it can be clearly demonstrated that the expenditure will have alternative future uses or unless contractually reimbursable.

55. Which of the following would be considered research and development?

Routine efforts to refine an existing product. Periodic alterations to existing production lines. Marketing research to promote a new product. Construction of prototypes.

56. Which of the following costs should be capitalized in the year incurred?

Research and development costs. Costs to internally generate goodwill. Organizational costs. Costs to successfully defend a patent.

57. Research and development costs.

are intangible assets. may result in the development of a patent. are easily identified with specific projects. tudo acima.

58. Which of the following is considered research and development costs?

Planned search or critical investigation aimed at discovery of new knowledge. Translation of research findings or other knowledge into a plan or design for a new product or process. Translation of research findings or other knowledge into a significant improvement of an existing product. tudo acima.

59. Which of the following is considered research and development costs?

Planned search or critical investigation aimed at discovery of new knowledge. Translation of research findings or other knowledge into a plan or design for a new product or process. Neither a nor b. Both a and b.

60. Which of the following costs should be excluded from research and development expense?

Modification of the design of a product Acquisition of R & D equipment for use on a current project only Cost of marketing research for a new product Engineering activity required to advance the design of a product to the manufacturing stage.

61. If a company constructs a laboratory building to be used as a research and development facility, the cost of the laboratory building is matched against earnings as.

research and development expense in the period(s) of construction. depreciation deducted as part of research and development costs. depreciation or immediate write-off depending on company policy. an expense at such time as productive research and development has been obtained from the facility.

62. Operating losses incurred during the start-up years of a new business should be.

accounted for and reported like the operating losses of any other business. written off directly against retained earnings. capitalized as a deferred charge and amortized over five years. capitalized as an intangible asset and amortized over a period not to exceed 20 years.

63. The costs of organizing a corporation include legal fees, fees paid to the state of incorporation, fees paid to promoters, and the costs of meetings for organizing the promoters. These costs are said to benefit the corporation for the entity’s entire life. These costs should be.

capitalized and never amortized. capitalized and amortized over 40 years. capitalized and amortized over 5 years. expensed as incurred.

64. Which of the following would not be considered an R & D activity?

Adaptation of an existing capability to a particular requirement or customer’s need. Searching for applications of new research findings. Laboratory research aimed at discovery of new knowledge. Conceptual formulation and design of possible product or process alternatives.

65. Which of the following intangible assets should be shown as a separate item on the balance sheet?

66. The notes to the financial statements should include information about acquired intangible assets, and aggregate amortization expense for how many succeeding years?

67. Which of the following should be reported under the “Other Expenses and Losses” section of the income statement?

Goodwill impairment losses. Trade name amortization expense. Patent impairment losses None of the above.

68. The total amount of patent cost amortized to date is usually.

shown in a separate Accumulated Patent Amortization account which is shown contra to the Patents account. shown in the current income statement. reflected as credits in the Patents account. reflected as a contra property, plant and equipment item.

69. Intangible assets are reported on the balance sheet.

with an accumulated depreciation account. in the property, plant, and equipment section. separately from other assets. nenhuma das acima.

70. Which of the following is often reported as an extraordinary item?

Amortization expense. Impairment losses for intangible assets other than goodwill. Impairment losses on goodwill. Nenhuma das acima.

71. Which of the following is often reported as an extraordinary item?

Amortization expense. Impairment losses for intangible assets. Research and development costs. Nenhuma das acima.

*72. Which of the following costs incurred with developing computer software for internal use should be capitalized?

*73. When developing computer software to be sold, which of the following costs should be capitalized?

*74. Capitalized costs incurred to develop internal use computer software should be amortized using the:

percent-of-revenue approach. percent-of-completion approach. straight-line approach. accelerated amortization approach.

*75. Capitalized costs incurred while developing computer software to be sold should be amortized using the:

lower of the straight-line method or the percent-of-revenue method. higher of the percent-of-revenue method or the percent-of-completion method. lower of the percent-of-revenue method or the percent-of-completion method. higher of the straight-line method or the percent-of-revenue method.

Multiple Choice Answers—Conceptual.

76. Lynne Corporation acquired a patent on May 1, 2012. Lynne paid cash of $40,000 to the seller. Legal fees of $1,000 were paid related to the acquisition. What amount should be debited to the patent account?

77. Contreras Corporation acquired a patent on May 1, 2012. Contreras paid cash of $35,000 to the seller. Legal fees of $900 were paid related to the acquisition. What amount should be debited to the patent account?

78. Mini Corp. acquires a patent from Maxi Co. in exchange for 2,500 shares of Mini Corp.’s $5 par value common stock and $90,000 cash. When the patent was initially issued to Maxi Co., Mini Corp.’s stock was selling at $7.50 per share. When Mini Corp. acquired the patent, its stock was selling for $9 a share. Mini Corp. should record the patent at what amount?

79. Alonzo Co. acquires 3 patents from Shaq Corp. for a total of $300,000. The patents were carried on Shaq’s books as follows: Patent AA: $5,000; Patent BB: $2,000; and Patent CC: $3,000. When Alonzo acquired the patents their fair values were: Patent AA: $20,000; Patent BB: $240,000; and Patent CC: $60,000. At what amount should Alonzo record Patent BB?

80. Jeff Corporation purchased a limited-life intangible asset for $150,000 on May 1, 2010. It has a useful life of 10 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2012?

81. Rich Corporation purchased a limited-life intangible asset for $270,000 on May 1, 2010. It has a useful life of 10 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2012?

82. Thompson Company incurred research and development costs of $100,000 and legal fees of $20,000 to acquire a patent. The patent has a legal life of 20 years and a useful life of 10 years. What amount should Thompson record as Patent Amortization Expense in the first year?

83. ELO Corporation purchased a patent for $180,000 on September 1, 2010. It had a useful life of 10 years. On January 1, 2012, ELO spent $44,000 to successfully defend the patent in a lawsuit. ELO feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2012?

84. Danks Corporation purchased a patent for $900,000 on September 1, 2010. It had a useful life of 10 years. On January 1, 2012, Danks spent $220,000 to successfully defend the patent in a lawsuit. Danks feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2012?

85. The general ledger of Vance Corporation as of December 31, 2012, includes the following accounts:

Deposits with advertising agency (will be used to promote goodwill) 27,000.

Discount on bonds payable 70,000.

Excess of cost over fair value of identifiable net assets of.

Acquired subsidiary 440,000.

In the preparation of Vance’s balance sheet as of December 31, 2012, what should be reported as total intangible assets?

86. In January, 2008, Findley Corporation purchased a patent for a new consumer product for $960,000. At the time of purchase, the patent was valid for fifteen years. Due to the competitive nature of the product, however, the patent was estimated to have a useful life of only ten years. During 2013 the product was permanently removed from the market under governmental order because of a potential health hazard present in the product. What amount should Findley charge to expense during 2013, assuming amortization is recorded at the end of each year?

87. Day Company purchased a patent on January 1, 2012 for $600,000. The patent had a remaining useful life of 10 years at that date. In January of 2013, Day successfully defends the patent at a cost of $270,000, extending the patent’s life to 12/31/24. What amount of amortization expense would Kerr record in 2013?

88. On January 2, 2012, Klein Co. bought a trademark from Royce, Inc. for $1,200,000. An independent research company estimated that the remaining useful life of the trademark was 10 years. Its unamortized cost on Royce’s books was $900,000. In Klein’s 2012 income statement, what amount should be reported as amortization expense?

89. A company acquires a patent for a drug with a remaining legal and useful life of six years on January 1, 2011 for $2,100,000. The company uses straight-line amortization for patents. On January 2, 2013, a new patent is received for a timed-release version of the same drug. The new patent has a legal and useful life of twenty years. The least amount of amortization that could be recorded in 2013 is.

90. Blue Sky Company’s 12/31/12 balance sheet reports assets of $7,500,000 and liabilities of $3,000,000. All of Blue Sky’s assets’ book values approximate their fair value, except for land, which has a fair value that is $450,000 greater than its book value. On 12/31/12, Horace Wimp Corporation paid $7,650,000 to acquire Blue Sky. What amount of goodwill should Horace Wimp record as a result of this purchase?

91. Dotel Company’s 12/31/12 balance sheet reports assets of $12,000,000 and liabilities of $5,000,000. All of Dotel’s assets’ book values approximate their fair value, except for land, which has a fair value that is $800,000 greater than its book value. On 12/31/12, Egbert Corporation paid $12,200,000 to acquire Dotel. What amount of goodwill should Egbert record as a result of this purchase?

92. Floyd Company purchases Haeger Company for $3,200,000 cash on January 1, 2013. The book value of Haeger Company’s net assets, as reflected on its December 31, 2012 balance sheet is $2,480,000. An analysis by Floyd on December 31, 2012 indicates that the fair value of Haeger’s tangible assets exceeded the book value by $240,000, and the fair value of identifiable intangible assets exceeded book value by $180,000. How much goodwill should be recognized by Floyd Company when recording the purchase of Haeger Company?

93. General Products Company bought Special Products Division in 2012 and appropriately recorded $500,000 of goodwill related to the purchase. On December 31, 2013, the fair value of Special Products Division is $4,000,000 and it is carried on General Product’s books for a total of $3,400,000, including the goodwill. An analysis of Special Products Division’s assets indicates that goodwill of $400,000 exists on December 31, 2013. What goodwill impairment should be recognized by General Products in 2013?

94. During 2012, Bond Company purchased the net assets of May Corporation for $2,000,000. On the date of the transaction, May had $600,000 of liabilities. The fair value of May’s assets when acquired were as follows:

Current assets $ 1,080,000.

Noncurrent assets 2,520,000.

How should the $1,000,000 difference between the fair value of the net assets acquired ($3,000,000) and the cost ($2,000,000) be accounted for by Bond?

The $1,000,000 difference should be credited to retained earnings. The $1,000,000 difference should be recognized as a gain. The current assets should be recorded at $1,080,000 and the noncurrent assets should be recorded at $1,520,000. A deferred credit of $1,000,000 should be set up and then amortized to income over a period not to exceed forty years.

95. The following information is available for Barkley Company’s patents:

Carrying amount 1,290,000.

Expected future net cash flows 1,200,000.

Fair value 975,000.

Barkley would record a loss on impairment of.

96. Harrel Company acquired a patent on an oil extraction technique on January 1, 2012 for $7,500,000. It was expected to have a 10 year life and no residual value. Harrel uses straight-line amortization for patents. On December 31, 2013, the expected future cash flows expected from the patent were expected to be $900,000 per year for the next eight years. The present value of these cash flows, discounted at Harrel’s market interest rate, is $4,200,000. At what amount should the patent be carried on the December 31, 2013 balance sheet?

97. Malrom Manufacturing Company acquired a patent on a manufacturing process on January 1, 2012 for $6,250,000. It was expected to have a 10 year life and no residual value. Malrom uses straight-line amortization for patents. On December 31, 2013, the expected future cash flows expected from the patent were expected to be $500,000 per year for the next eight years. The present value of these cash flows, discounted at Malrom’s market interest rate, is $3,000,000. At what amount should the patent be carried on the December 31, 2013 balance sheet?

98. Twilight Corporation acquired End-of-the-World Products on January 1, 2012 for $8,000,000, and recorded goodwill of $1,500,000 as a result of that purchase. At December 31, 2012, the End-of-the-World Products Division had a fair value of $6,800,000. The net identifiable assets of the Division (excluding goodwill) had a fair value of $5,800,000 at that time. What amount of loss on impairment of goodwill should Twilight record in 2012?

99. Jenks Corporation acquired Linebrink Products on January 1, 2012 for $6,000,000, and recorded goodwill of $1,125,000 as a result of that purchase. At December 31, 2012, Linebrink Products had a fair value of $5,100,000. The net identifiable assets of the Linebrink (excluding goodwill) had a fair value of $4,350,000 at that time. What amount of loss on impairment of goodwill should Jenks record in 2012?

In 2012, Edwards Corporation incurred research and development costs as follows:

Materials and equipment $ 90,000.

Indirect costs 150,000.

These costs relate to a product that will be marketed in 2011. It is estimated that these costs will be recouped by December 31, 2015. The equipment has no alternative future use. What is the amount of research and development costs that should be expensed in 2012?

Hall Co. incurred research and development costs in 2013 as follows:

Materials used in research and development projects $ 450,000.

Equipment acquired that will have alternate future uses in future research.

and development projects 3,000,000.

Depreciation for 2013 on above equipment 500,000.

Personnel costs of persons involved in research and development projects750,000.

Consulting fees paid to outsiders for research and development projects 300,000.

Indirect costs reasonably allocable to research and development projects 225,000.

The amount of research and development costs charged to Hall’s 2013 income statement should be.

Loazia Inc. incurred the following costs during the year ended December 31, 2013:

Laboratory research aimed at discovery of new knowledge $230,000.

Costs of testing prototype and design modifications 45,000.

Quality control during commercial production, including routine testing.

of products 270,000.

Construction of research facilities having an estimated useful life of.

6 years but no alternative future use 360,000.

The total amount to be classified and expensed as research and development in 2013 is.

103. MaBelle Corporation incurred the following costs in 2012:

Acquisition of R&D equipment with a useful life of.

4 years in R&D projects $600,000.

Start-up costs incurred when opening a new plant 140,000.

Advertising expense to introduce a new product 700,000.

Engineering costs incurred to advance a product to full.

production stage 500,000.

What amount should MaBelle record as research & development expense in 2012?

104. Leeper Corporation incurred the following costs in 2012:

Acquisition of R&D equipment with a useful life of.

4 years in R&D projects $800,000.

Cost of making minor modifications to an existing product 140,000.

Advertising expense to introduce a new product 700,000.

Engineering costs incurred to advance a product to full.

production stage 750,000.

What amount should Leeper record as research & development expense in 2012?

105. Platteville Corporation has the following account balances at 12/31/12:

Amortization expense $ 30,000.

Patent, net of $90,000 amortization 210,000.

What amount should Platteville report for intangible assets on the 12/31/12 balance sheet?

*106.Shangra-La Company incurred $2,000,000 ($500,000 in 2011 and $1,500,000 in 2012) to develop a computer software product. $600,000 of this amount was expended before technological feasibility was established in early 2012. The product will earn future revenues of $4,000,000 over its 5-year life, as follows: 2012 – $1,000,000; 2013 – $1,000,000; 2014 – $800,000; 2015 – $800,000; and 2016 – $400,000. What portion of the $2,000,000 computer software costs should be expensed in 2012?

*107.Logan Company incurred $4,000,000 ($1,100,000 in 2011 and $2,900,000 in 2012) to develop a computer software product. $1,200,000 of this amount was expended before technological feasibility was established in early 2012. The product will earn future revenues of $8,000,000 over its 5-year life, as follows: 2012 – $2,000,000; 2013 – $2,000,000; 2014 – $1,600,000; 2015 – $1,600,000; and 2016 – $800,000. What portion of the $4,000,000 computer software costs should be expensed in 2012?

*108.Geller Inc. incurred $700,000 of capitalizable costs to develop computer software during 2012. The software will earn total revenues over its 4-year life as follows: 2012 – $400,000; 2013 e # 8211; $500,000; 2014 & # 8211; $600,000; and 2015 – US $ 500.000. What amount of the computer software costs should be expensed in 2012?

*109.Tripiani Inc. incurred $800,000 of capitalizable costs to develop computer software during 2012. The software will earn total revenues over its 5-year life as follows: 2012 – $500,000; 2013 e # 8211; $600,000; 2014 & # 8211; $600,000; 2015 & # 8211; $200,000; and 2016 – US $ 100.000. What amount of the computer software costs should be expensed in 2012?

*110.Tripiani Inc. incurred $900,000 of capitalizable costs to develop computer software during 2012. The software will be used internally over its 5-year life. What amount of the computer software costs should be expensed in 2012?

Multiple Choice Answers—Computational.

Lopez Corp. incurred $1,260,000 of research and development costs to develop a product for which a patent was granted on January 2, 2008. Legal fees and other costs associated with registration of the patent totaled $240,000. On March 31, 2013, Lopez paid $450,000 for legal fees in a successful defense of the patent. The total amount capitalized for the patent through March 31, 2013 should be $690,000.

On June 30, 2013, Cey, Inc. exchanged 4,000 shares of Seely Corp. $30 par value common stock for a patent owned by Gore Co. The Seely stock was acquired in 2013 at a cost of $110,000. At the exchange date, Seely common stock had a fair value of $46 per share, and the patent had a net carrying value of $220,000 on Gore’s books. Cey should record the patent at $110,000. US $ 120.000. $184,000. $220,000.

On May 5, 2013, MacDougal Corp. exchanged 6,000 shares of its $25 par value treasury common stock for a patent owned by Masset Co. The treasury shares were acquired in 2012 for $135,000. At May 5, 2013, MacDougal’s common stock was quoted at $34 per share, and the patent had a carrying value of $165,000 on Masset’s books. MacDougal should record the patent at $135,000. US $ 150.000. $165,000. $204,000.

Ely Co. bought a patent from Baden Corp. on January 1, 2013, for $450,000. An independent consultant retained by Ely estimated that the remaining useful life at January 1, 2013 is 15 years. Its unamortized cost on Baden’s accounting records was $225,000; the patent had been amortized for 5 years by Baden. How much should be amortized for the year ended December 31, 2013 by Ely Co.? $ 0 $22,500. US $ 30.000. $45,000.

January 2, 2010, Koll, Inc. purchased a patent for a new consumer product for $450,000. At the time of purchase, the patent was valid for 15 years; however, the patent’s useful life was estimated to be only 10 years due to the competitive nature of the product. On December 31, 2013, the product was permanently withdrawn from the market under governmental order because of a potential health hazard in the product. What amount should Koll charge against income during 2013, assuming amortization is recorded at the end of each year? $ 45,000 $270,000 $315,000 $360,000.

On January 1, 2009, Russell Company purchased a copyright for $2,000,000, having an estimated useful life of 16 years. In January 2013, Russell paid $300,000 for legal fees in a successful defense of the copyright. Copyright amortization expense for the year ended December 31, 2013, should be $0. $125,000. $143,750. US $ 150.000.

Which of the following legal fees should be capitalized?

Legal fees to Legal fees to successfully.

obtain a copyright defend a trademark.

Which of the following costs of goodwill should be amortized over their estimated useful lives?

Costs of goodwill from a Costs of developing.

business combination goodwill internally.

During 2013, Leon Co. incurred the following costs:

Testing in search for process alternatives $ 350,000.

Costs of marketing research for new product 250,000.

Modification of the formulation of a process 560,000.

Research and development services performed by Beck Corp. for Leon425,000.

In Leon’s 2013 income statement, research and development expense should be.

Riley Co. incurred the following costs during 2013:

Significant modification to the formulation of a chemical product $160,000.

Trouble-shooting in connection with breakdowns during commercial.

Cost of exploration of new formulas 200,000.

Seasonal or other periodic design changes to existing products 185,000.

Laboratory research aimed at discovery of new technology 275,000.

In its income statement for the year ended December 31, 2013, Riley should report research and development expense of.

Multiple Choice Answers—CPA Adapted.

As in U. S. GAAP, under IFRS the costs associated with research and development are segregated into two components. Costs in the research phase are expensed under U. S. GAAP, but capitalized under IFRS. Costs in the research phase are always expensed under both IFRS and U. S. GAAP. IFRS differs from U. S. GAAP in the development phase in that costs are capitalized once technological feasibility is achieved. The increased acceptance of IFRS has caused costs associated with internally generated intangible assets to be capitalized under U. S. GAAP. IFRS permits some capitalization of internally generated intangible assets, if it is probable there will be a future benefit and the amount can be readily measured. While IFRS requires an impairment test at each reporting date for long-lived assets, it requires no such test for intangibles once a legal or useful life has been determined. IFRS allows reversal of impairment losses when there has been a change in economic conditions or in the expected use of the asset. Under U. S GAAP, impairment losses cannot be reversed for assets to be held and used. IFRS and U. S. GAAP are similar in the accounting for impairments of assets held for disposal. Under U. S. GAAP, impairment loss is measured as the excess of the carrying amount over the assets discounted cash flow.

As in U. S. GAAP, under IFRS the costs associated with research and development are segregated into two components, the research phase and the production phase. two components, the research phase and the development phase. three components, the planning phase, the research phase and the production phase. three components, the analysis phase, the development phase and the production phase.

In accounting for internally generated intangible assets, U. S. GAAP requires that all costs, no matter how immaterial, be capitalized. only material costs be capitalized. planned costs be capitalized, while costs in excess of plan be expensed. all costs be expensed.

The following costs are incurred during the research and development phases of a laser bone scanner.

Laboratory research aimed at discovery of new knowledge.

Search for application of new research findings.

Salaries of research staff designing new laser bone scanner.

Material, labor and overhead costs of prototype laser scanner.

Costs of testing prototype and design modifications.

Engineering costs incurred to advance the laser scanner to full production stage (technological feasibility reached)

Identify which of these are research phase items and will be immediately expensed under.

U. S. GAAP and IFRS.

The following costs are incurred during the research and development phases of a laser bone scanner.

Laboratory research aimed at discovery of new knowledge.

Search for application of new research findings.

Salaries of research staff designing new laser bone scanner.

Material, labor and overhead costs of prototype laser scanner.

Costs of testing prototype and design modifications.

Engineering costs incurred to advance the laser scanner to full.

production stage (technological feasibility reached)

Identify which of these are development phase items and will be immediately expensed under.

U. S. GAAP and IFRS.

The primary IFRS related to intangible assets and impairments is found in IAS 38 and IAS 10. IAS 16 and IAS 36. IAS 1 and IAS 34. IAS 38 and IAS 36.

IFRS allows reversal of impairment losses when the reversal is greater than the amount of the original impairment. the reversal falls in a subsequent fiscal year of the company’s operations. there has been a change in economic conditions or in the expected use of the asset. reversal of impairment losses is never allowed.

Under U. S. GAAP, impairment losses can be reversed but only if the reversal is greater than the amount of the original impairment. can be reversed but only if the reversal falls in a subsequent fiscal year of the company’s operations. cannot be reversed for assets to be held and used. nenhuma das acima.

IFRS and U. S. GAAP are diametrically opposed in their accounting for impairments of assets held for disposal. are similar in the accounting for impairments of assets held for disposal. are moving toward common ground in their accounting for impairments of assets held for disposal. are moving further apart in their accounting for impairments of assets held for disposal.

Under IFRS, costs in the development phase are never capitalized, but expensed as they are under U. S. GAAP. capitalized if they exceed development phase costs incurred for previously successful ventures. capitalized once technological feasibility is achieved. capitalized on an interim basis, but then expensed prior to the end of the company’s fiscal year.

Answers to Multiple Choice:

Briefly describe some of the similarities and differences between U. S. GAAP and IFRS with respect to the accounting for intangible assets.

Briefly discuss the convergence efforts that are underway in the area of intangible assets.

CURRENT LIABILITIES AND CONTINGENCIES.

IFRS questions are available at the end of this chapter.

1. A zero-interest-bearing note payable that is issued at a discount will not result in any interest expense being recognized.

2. Dividends in arrears on cumulative preferred stock should be recorded as a current liability.

3. Magazine subscriptions and airline ticket sales both result in unearned revenues.

4. Discount on Notes Payable is a contra account to Notes Payable on the balance sheet.

5. All long-term debt maturing within the next year must be classified as a current liability on the balance sheet.

6. A short-term obligation can be excluded from current liabilities if the company intends to refinance it on a long-term basis.

7. Many companies do not segregate the sales tax collected and the amount of the sale at the time of the sale.

8. A company must accrue a liability for sick pay that accumulates but does not vest.

9. Companies report the amount of social security taxes withheld from employees as well as the companies’ matching portion as current liabilities until they are remitted.

10. Accumulated rights exist when an employer has an obligation to make payment to an employee even after terminating his employment.

11. Companies should recognize the expense and related liability for compensated absences in the year earned by employees.

12. Companies should accrue an estimated loss from a loss contingency if information available prior to the issuance of financial statements indicates that it is probable that a liability has been incurred.

13. A company discloses gain contingencies in the notes only when a high probability exists for realizing them.

14. The expected profit from a sales type warranty that covers several years should all be recognized in the period the warranty is sold.

15. The fair value of an asset retirement obligation is recorded as both an increase to the related asset and a liability.

16. The cause for litigation must have occurred on or before the date of the financial statements to report a liability in the financial statements.

17. Under the expense warranty approach, companies charge warranty costs only to the period in which they comply with the warranty.

18. Prepaid insurance should be included in the numerator when computing the acid-test (quick) ratio.

19. Paying a current liability with cash will always reduce the current ratio.

20. Current liabilities are usually recorded and reported in financial statements at their full maturity value.

True False Answers—Conceptual.

21. Liabilities are.

any accounts having credit balances after closing entries are made. deferred credits that are recognized and measured in conformity with generally accepted accounting principles. obligations to transfer ownership shares to other entities in the future. obligations arising from past transactions and payable in assets or services in the future.

22. Which of the following is a current liability?

A long-term debt maturing currently, which is to be paid with cash in a sinking fund A long-term debt maturing currently, which is to be retired with proceeds from a new debt issue A long-term debt maturing currently, which is to be converted into common stock None of these.

23. Which of the following is true about accounts payable?

Accounts payable should not be reported at their present value. When accounts payable are recorded at the net amount, a Purchase Discounts account will be used. When accounts payable are recorded at the gross amount, a Purchase Discounts Lost account will be used. 1 2 3 Both 2 and 3 are true.

24. Among the short-term obligations of Lance Company as of December 31, the balance sheet date, are notes payable totaling $250,000 with the Madison National Bank. These are 90-day notes, renewable for another 90-day period. These notes should be classified on the balance sheet of Lance Company as.

current liabilities. deferred charges. long-term liabilities. intermediate debt.

25. Which of the following is not true about the discount on short-term notes payable?

The Discount on Notes Payable account has a debit balance. The Discount on Notes Payable account should be reported as an asset on the balance sheet. When there is a discount on a note payable, the effective interest rate is higher than the stated discount rate. All of these are true.

26. Which of the following may be a current liability?

Withheld Income Taxes Deposits Received from Customers Deferred Revenue All of these.

27. Which of the following items is a current liability?

Bonds (for which there is an adequate sinking fund properly classified as a long-term investment) due in three months. Bonds due in three years. Bonds (for which there is an adequate appropriation of retained earnings) due in eleven months. Bonds to be refunded when due in eight months, there being no doubt about the marketability of the refunding issue.

28. Which of the following should not be included in the current liabilities section of the balance sheet?

Trade notes payable Short-term zero-interest-bearing notes payable The discount on short-term notes payable All of these are included.

29. Which of the following is a current liability?

Preferred dividends in arrears A dividend payable in the form of additional shares of stock A cash dividend payable to preferred stockholders All of these.

30. Stock dividends distributable should be classified on the.

income statement as an expense. balance sheet as an asset. balance sheet as a liability. balance sheet as an item of stockholders’ equity.

31. Of the following items, the only one which should not be classified as a current liability is.

current maturities of long-term debt. sales taxes payable. short-term obligations expected to be refinanced. unearned revenues.

32. An account which would be classified as a current liability is.

dividends payable in the company’s stock. accounts payable—debit balances. losses expected to be incurred within the next twelve months in excess of the company’s insurance coverage. nenhum desses.

33. Which of the following is a characteristic of a current liability but not a long-term liability?

Unavoidable obligation. Present obligation that entails settlement by probable future transfer or use of cash, goods, or services. Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities. Transaction or other event creating the liability has already occurred.

34. Which of the following is not considered a part of the definition of a liability?

Unavoidable obligation. Transaction or other event creating the liability has already occurred. Present obligation that entails settlement by probable future transfer or use of cash, goods, or services. Liquidation is reasonably expected to require use of existing resources classified as current assets or create other current liabilities.

35. Why is the liability section of the balance sheet of primary importance to bankers?

To evaluate the entity’s credit quality. To assist in understanding the entity’s liquidity. To better understand sources of repayment. To evaluate operating efficiency.

36. What is the relationship between current liabilities and a company’s operating cycle?

Liquidation of current liabilities is reasonably expected within the company’s operating cycle (or one year if less). Current liabilities are the result of operating transactions. Current liabilities can’t exceed the amount incurred in one operating cycle. There is no relationship between the two.

37. What is the relationship between present value and the concept of a liability?

Present values are used to measure certain liabilities. Present values are not used to measure liabilities. Present values are used to measure all liabilities. Present values are only used to measure long-term liabilities.

38. What is a discount as it relates to zero-interest-bearing notes payable?

The discount represents the lender’s costs to underwrite the note. The discount represents the credit quality of the borrower. The discount represents the cost of borrowing. The discount represents the allowance for uncollectible amounts.

39. Where is debt callable by the creditor reported on the debtor’s financial statements?

Long-term liability. Current liability if the creditor intends to call the debt within the year, otherwise a long-term liability. Current liability if it is probable that creditor will call the debt within the year, otherwise a long-term liability. Current liability.

40. Which of the following is not a condition necessary to exclude a short-term obligation from current liabilities?

Intend to refinance the obligation on a long-term basis. Obligation must be due with one year. Demonstrate the ability to complete the refinancing. Subsequently refinance the obligation on a long-term basis.

41. Which of the following does not demonstrate evidence regarding the ability to consummate a refinancing of short-term debt?

Management indicated that they are going to refinance the obligation. Actually refinance the obligation. Have capacity under existing financing agreements that can be used to refinance the obligation. Enter into a financing agreement that clearly permits the entity to refinance the obligation.

42. A company has not declared a dividend on its cumulative preferred stock for the past three years. What is the required accounting treatment or disclosure in this situation?

Record a liability for cumulative amount of preferred stock dividends not declared. Disclose the amount of the dividends in arrears. Record a liability for the current year’s dividends only. No disclosure or recognition is required.

43. Which of the following situations may give rise to unearned revenue?

Providing trade credit to customers. Selling inventory. Selling magazine subscriptions. Providing manufacturer warranties.

44. Which of the following statements is correct?

A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis. A company may exclude a short-term obligation from current liabilities if the firm can demonstrate an ability to consummate a refinancing. A company may exclude a short-term obligation from current liabilities if it is paid off after the balance sheet date and subsequently replaced by long-term debt before the balance sheet is issued. Nenhum desses.

45.The ability to consummate the refinancing of a short-term obligation may be demon - strated by.

actually refinancing the obligation by issuing a long-term obligation after the date of the balance sheet but before it is issued. entering into a financing agreement that permits the enterprise to refinance the debt on a long-term basis. actually refinancing the obligation by issuing equity securities after the date of the balance sheet but before it is issued. all of these.

46. Which of the following statements is false?

A company may exclude a short-term obligation from current liabilities if the firm intends to refinance the obligation on a long-term basis and demonstrates an ability to complete the refinancing. Cash dividends should be recorded as a liability when they are declared by the board of directors. Under the cash basis method, warranty costs are charged to expense as they are paid. FICA taxes withheld from employees’ payroll checks should never be recorded as a liability since the employer will eventually remit the amounts withheld to the appropriate taxing authority.

47. Which of the following is not a correct statement about sales taxes?

Sales taxes are an expense of the seller. Many companies record sales taxes in the sales account. If sales taxes are included in the sales account, the first step to find the amount of sales taxes is to divide sales by 1 plus the sales tax rate. All of these are true.

S 48. If a short-term obligation is excluded from current liabilities because of refinancing, the footnote to the financial statements describing this event should include all of the following information except.

a general description of the financing arrangement. the terms of the new obligation incurred or to be incurred. the terms of any equity security issued or to be issued. the number of financing institutions that refused to refinance the debt, if any.

S 49. In accounting for compensated absences, the difference between vested rights and accumulated rights is.

vested rights are normally for a longer period of employment than are accumu­lated rights. vested rights are not contingent upon an employee’s future service. vested rights are a legal and binding obligation on the company, whereas accumulated rights expire at the end of the accounting period in which they arose. vested rights carry a stipulated dollar amount that is owed to the employee; accumulated rights do not represent monetary compensation.

P 50. An employee’s net (or take-home) pay is determined by gross earnings minus amounts for income tax withholdings and the employee’s.

portion of FICA taxes and unemployment taxes. and employer’s portion of FICA taxes, and unemployment taxes. portion of FICA taxes, unemployment taxes, and any voluntary deductions. portion of FICA taxes and any voluntary deductions.

51. Which of these is not included in an employer’s payroll tax expense?

F. I.C. A. (social security) taxes Federal unemployment taxes State unemployment taxes Federal income taxes.

52. Which of the following is a condition for accruing a liability for the cost of compensation for future absences?

The obligation relates to the rights that vest or accumulate. Payment of the compensation is probable. The obligation is attributable to employee services already performed. All of these are conditions for the accrual.

53. A liability for compensated absences such as vacations, for which it is expected that employees will be paid, should.

be accrued during the period when the compensated time is expected to be used by employees. be accrued during the period following vesting. be accrued during the period when earned. not be accrued unless a written contractual obligation exists.

54. The amount of the liability for compensated absences should be based on.

the current rates of pay in effect when employees earn the right to compensated absences. the future rates of pay expected to be paid when employees use compensated time. the present value of the amount expected to be paid in future periods. 1. 2. 3. Either 1 or 2 is acceptable.

55. What are compensated absences?

Unpaid time off. A form of healthcare. Payroll deductions. Folga remunerada.

56. Which gives rise to the requirement to accrue a liability for the cost of compensated absences?

Payment is probable. Employee rights vest or accumulate. Amount can be reasonably estimated. Tudo acima.

57. Under what conditions is an employer required to accrue a liability for sick pay?

Sick pay benefits can be reasonably estimated. Sick pay benefits vest. Sick pay benefits equal 100% of the pay. Sick pay benefits accumulate.

58. Which of the following taxes does not represent a common payroll deduction?

Federal income taxes. FICA taxes. State unemployment taxes. State income taxes.

59. What is a contingency?

An existing situation where certainty exists as to a gain or loss that will be resolved when one or more future events occur or fail to occur. An existing situation where uncertainty exists as to possible loss that will be resolved when one or more future events occur. An existing situation where uncertainty exists as to possible gain or loss that will not be resolved in the foreseeable future. An existing situation where uncertainty exists as to possible gain or loss that will be resolved when one or more future events occur or fail to occur.

60. When is a contingent liability recorded?

When the amount can be reasonably estimated. When the future events are probable to occur and the amount can be reasonably estimated. When the future events are probable to occur. When the future events will possibly occur and the amount can be reasonably estimated.

61. Which of the following is an example of a contingent liability?

Obligations related to product warranties. Possible receipt from a litigation settlement. Pending court case with a probable favorable outcome. Tax loss carryforwards.

62. Which of the following terms is associated with recording a contingent liability?

63. Which of the following is the proper way to report a gain contingency?

As an accrued amount. As deferred revenue. As an account receivable with additional disclosure explaining the nature of the contingency. As a disclosure only.

64. Which of the following contingencies need not be disclosed in the financial statements or the notes thereto?

Probable losses not reasonably estimable Environmental liabilities that cannot be reasonably estimated Guarantees of indebtedness of others All of these must be disclosed.

65. Which of the following sets of conditions would give rise to the accrual of a contingency under current generally accepted accounting principles?

Amount of loss is reasonably estimable and event occurs infrequently. Amount of loss is reasonably estimable and occurrence of event is probable. Event is unusual in nature and occurrence of event is probable. Event is unusual in nature and event occurs infrequently.

66. Jeff Beck is a farmer who owns land which borders on the right-of-way of the Northern Railroad. On August 10, 2012, due to the admitted negligence of the Railroad, hay on the farm was set on fire and burned. Beck had had a dispute with the Railroad for several years concerning the ownership of a small parcel of land. The representative of the Railroad has offered to assign any rights which the Railroad may have in the land to Beck in exchange for a release of his right to reimbursement for the loss he has sustained from the fire. Beck appears inclined to accept the Railroad’s offer. The Railroad’s 2012 financial statements should include the following related to the incident:

recognition of a loss and creation of a liability for the value of the land. recognition of a loss only. creation of a liability only. disclosure in note form only.

67. A contingency can be accrued when.

it is certain that funds are available to settle the disputed amount. an asset may have been impaired. the amount of the loss can be reasonably estimated and it is probable that an asset has been impaired or a liability incurred. it is probable that an asset has been impaired or a liability incurred even though the amount of the loss cannot be reasonably estimated.

68. A contingent liability.

definitely exists as a liability but its amount and due date are indeterminable. is accrued even though not reasonably estimated. is not disclosed in the financial statements. is the result of a loss contingency.

69. To record an asset retirement obligation (ARO), the cost associated with the ARO is.

expensed. included in the carrying amount of the related long-lived asset. included in a separate account. nenhum desses.

70. A company is legally obligated for the costs associated with the retirement of a long-lived asset.

only when it hires another party to perform the retirement activities. only if it performs the activities with its own workforce and equipment. whether it hires another party to perform the retirement activities or performs the activities itself. when it is probable the asset will be retired.

71. Assume that a manufacturing corporation has (1) good quality control, (2) a one-year operating cycle, (3) a relatively stable pattern of annual sales, and (4) a continuing policy of guaranteeing new products against defects for three years that has resulted in material but rather stable warranty repair and replacement costs. Any liability for the warranty.

should be reported as long-term. should be reported as current. should be reported as part current and part long-term. need not be disclosed.

72. Ortiz Corporation, a manufacturer of household paints, is preparing annual financial statements at December 31, 2012. Because of a recently proven health hazard in one of its paints, the government has clearly indicated its intention of having Ortiz recall all cans of this paint sold in the last six months. The management of Ortiz estimates that this recall would cost $800,000. What accounting recognition, if any, should be accorded this situation?

No recognition Note disclosure only Operating expense of $800,000 and liability of $800,000 Appropriation of retained earnings of $800,000.

73. Information available prior to the issuance of the financial statements indicates that it is probable that, at the date of the financial statements, a liability has been incurred for obligations related to product warranties. The amount of the loss involved can be reasonably estimated. Based on the above facts, an estimated loss contingency should be.

accrued. disclosed but not accrued. neither accrued nor disclosed. classified as an appropriation of retained earnings.

P 74. Espinosa Co. has a loss contingency to accrue. The loss amount can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The amount of loss accrual should be.

zero. the minimum of the range. the mean of the range. the maximum of the range.

S 75. Dean Company becomes aware of a lawsuit after the date of the financial statements, but before they are issued. A loss and related liability should be reported in the financial statements if the amount can be reasonably estimated, an unfavorable outcome is highly probable, and.

the Dean Company admits guilt. the court will decide the case within one year. the damages appear to be material. the cause for action occurred during the accounting period covered by the financial statements.

S 76. Use of the accrual method in accounting for product warranty costs.

is required for federal income tax purposes. is frequently justified on the basis of expediency when warranty costs are immaterial. finds the expense account being charged when the seller performs in compliance with the warranty. represents accepted practice and should be used whenever the warranty is an integral and inseparable part of the sale.

77. Which of the following best describes the accrual method of accounting for warranty costs?

Expensed when paid. Expensed when warranty claims are certain. Expensed based on estimate in year of sale. Expensed when incurred.

78. Which of the following best describes the cash-basis method of accounting for warranty costs?

Expensed based on estimate in year of sale. Expensed when liability is accrued. Expensed when warranty claims are certain. Expensed when incurred.

79. Which of the following is a characteristic of the expense warranty approach, but not the sales warranty approach?

Estimated liability under warranties. Warranty expense. Unearned warranty revenue. Warranty revenue.

80. An electronics store is running a promotion where for every video game purchased, the customer receives a coupon upon checkout to purchase a second game at a 50% discount. The coupons expire in one year. The store normally recognized a gross profit margin of 40% of the selling price on video games. How would the store account for a purchase using the discount coupon?

The reduction in sales price attributed to the coupon is recognized as premium expense. The difference between the cost of the video game and the cash received is recognized as premium expense. Premium expense is not recognized. The difference between the cost of the video game and the selling price prior to the coupon is recognized as premium expense.

81. What condition is necessary to recognize an asset retirement obligation?

Company has an existing legal obligation and can reasonably estimate the amount of the liability. Company can reasonably estimate the amount of the liability. Company has an existing legal obligation. Obligation event has occurred.

82. Which of the following are not factors that are considered when evaluating whether or not to record a liability for pending litigation?

Time period in which the underlying cause of action occurred. The type of litigation involved. The probability of an unfavorable outcome. The ability to make a reasonable estimate of the amount of the loss.

83. How do you determine the acid-test ratio?

The sum of cash and short-term investments divided by short-term debt. Current assets divided by current liabilities. Current assets divided by short-term debt. The sum of cash, short-term investments and net receivables divided by current liabilities.

84. What does the current ratio inform you about a company?

The extent of slow-moving inventories. The efficient use of assets. The company’s liquidity. The company’s profitability.

S 85. Which of the following is not acceptable treatment for the presentation of current liabilities?

Listing current liabilities in order of maturity Listing current liabilities according to amount Offsetting current liabilities against assets that are to be applied to their liquidation Showing current liabilities immediately below current assets to obtain a presentation of working capital.

P 86. The ratio of current assets to current liabilities is called the.

current ratio. acid-test ratio. current asset turnover ratio. current liability turnover ratio.

87. Accrued liabilities are disclosed in financial statements by.

a footnote to the statements. showing the amount among the liabilities but not extending it to the liability total. an appropriation of retained earnings. appropriately classifying them as regular liabilities in the balance sheet.

88. The numerator of the acid-test ratio consists of.

total current assets. cash and marketable securities. cash and net receivables. cash, marketable securities, and net receivables.

89. Each of the following are included in both the current ratio and the acid-test ratio except.

Multiple Choice Answers—Conceptual.

90. Glaus Corp. signed a three-month, zero-interest-bearing note on November 1, 2012 for the purchase of $250,000 of inventory. The face value of the note was $253,675. Assuming Glaus used a “Discount on Note Payable” account to initially record the note and that the discount will be amortized equally over the 3-month period, the adjusting entry made at December 31, 2012 will include a.

debit to Discount on Note Payable for $1,225. debit to Interest Expense for $2,450. credit to Discount on Note Payable for $1,255. credit to Interest Expense for $2,450.

91. The effective interest on a 12-month, zero-interest-bearing note payable of $300,000, discounted at the bank at 8% is.

92. On September 1, Hydra purchased $13,300 of inventory items on credit with the terms 1/15, net 30, FOB destination. Freight charges were $280. Payment for the purchase was made on September 18. Assuming Hydra uses the perpetual inventory system and the net method of accounting for purchase discounts, what amount is recorded as inventory from this purchase?

93. Sodium Inc. borrowed $280,000 on April 1. The note requires interest at 12% and principal to be paid in one year. How much interest is recognized for the period from April 1 to December 31?

94. Collier borrowed $350,000 on October 1 and is required to pay $360,000 on March 1. What amount is the note payable recorded at on October 1 and how much interest is recognized from October 1 to December 31?

95. Purest owes $2 million that is due on February 28. The company borrows $1,600,000 on February 25 (5-year note) and uses the proceeds to pay down the $2 million note and uses other cash to pay the balance. How much of the $2 million note is classified as long-term in the December 31 financial statements.

96. Vista newspapers sold 6,000 of annual subscriptions at $125 each on September 1. How much unearned revenue will exist as of December 31?

97. Purchase Retailer made cash sales during the month of October of $221,000. The sales are subject to a 6% sales tax that was also collected. Which of the following would be included in the summary journal entry to reflect the sale transactions?

Debit Cash for $221,000. Credit Sales Taxes Payable for $12,510. Credit Sales Revenue for $208,490. Credit Sales Taxes Payable for $13,260.

98. On February 10, 2012, after issuance of its financial statements for 2011, House Company entered into a financing agreement with Lebo Bank, allowing House Company to borrow up to $6,000,000 at any time through 2014. Amounts borrowed under the agreement bear interest at 2% above the bank’s prime interest rate and mature two years from the date of loan. House Company presently has $2,250,000 of notes payable with First National Bank maturing March 15, 2012. The company intends to borrow $3,750,000 under the agreement with Lebo and liquidate the notes payable to First National. The agreement with Lebo also requires House to maintain a working capital level of $9,000,000 and prohibits the payment of dividends on common stock without prior approval by Lebo Bank. From the above information only, the total short-term debt of House Company as of the December 31, 2012 balance sheet date is.

99. On December 31, 2012, Irey Co. has $4,000,000 of short-term notes payable due on February 14, 2013. On January 10, 2013, Irey arranged a line of credit with County Bank which allows Irey to borrow up to $3,000,000 at one percent above the prime rate for three years. On February 2, 2013, Irey borrowed $2,400,000 from County Bank and used $1,000,000 additional cash to liquidate $3,400,000 of the short-term notes payable. The amount of the short-term notes payable that should be reported as current liabilities on the December 31, 2012 balance sheet which is issued on March 5, 2013 is.

Use the following information for questions 100 and 101.

Stine Co. is a retail store operating in a state with a 6% retail sales tax. The retailer may keep 2% of the sales tax collected. Stine Co. records the sales tax in the Sales Revenue account. The amount recorded in the Sales Revenue account during May was $222,600.

The amount of sales taxes payable (to the nearest dollar) to the state for the month of May is $12,826. $12,348. $13,089. $13,873.

Vopat, Inc., is a retail store operating in a state with a 5% retail sales tax. The state law provides that the retail sales tax collected during the month must be remitted to the state during the following month. If the amount collected is remitted to the state on or before the twentieth of the following month, the retailer may keep 3% of the sales tax collected. On April 10, 2012, Vopat remitted $135,800 tax to the state tax division for March 2012 retail sales. What was Vopat ‘s March 2012 retail sales subject to sales tax? $2,716,000. $2,660,000. $2,800,000. $2,741,667.

Jenkins Corporation has $2,500,000 of short-term debt it expects to retire with proceeds from the sale of 90,000 shares of common stock. If the stock is sold for $20 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities? $1,800,000 $2,500,000 $700,000 $0.

Ermler Corporation has $1,800,000 of short-term debt it expects to retire with proceeds from the sale of 50,000 shares of common stock. If the stock is sold for $20 per share subsequent to the balance sheet date, but before the balance sheet is issued, what amount of short-term debt could be excluded from current liabilities? $1,000,000 $1,800,000 $800,000 $0.

Preston Co., which has a taxable payroll of $700,000, is subject to FUTA tax of 6.2% and a state contribution rate of 5.4%. However, because of stable employment experience, the company’s state rate has been reduced to 2%. What is the total amount of federal and state unemployment tax for Preston Co.? $81,900 $57,400 $28,000 $19,600.

Roark Co., which has a taxable payroll of $600,000, is subject to FUTA tax of 6.2% and a state contribution rate of 5.4%. However, because of stable employment experience, the company’s state rate has been reduced to 2%. What is the total amount of federal and state unemployment tax for Roark Co.? $70,200 $49,200 $24,000 $16,800.

A company gives each of its 50 employees (assume they were all employed continuously through 2012 and 2013) 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2012, they made $21 per hour and in 2013 they made $24 per hour. During 2013, they took an average of 9 days of vacation each. The company’s policy is to record the liability existing at the end of each year at the wage rate for that year. What amount of vacation liability would be reflected on the 2012 and 2013 balance sheets, respectively? $100,800; $140,400 $115,200; $144,000 $100,800; $144,000 $115,200; $140,400.

A company gives each of its 50 employees (assume they were all employed continuously through 2012 and 2013) 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2012, they made $24.50 per hour and in 2013 they made $28 per hour. During 2013, they took an average of 9 days of vacation each. The company’s policy is to record the liability existing at the end of each year at the wage rate for that year. What amount of vacation liability would be reflected on the 2012 and 2013 balance sheets, respectively? $117,600; $163,800 $134,400; $168,000 $117,600; $168,000 $134,400; $163,800.

The total payroll of Teeter Company for the month of October, 2012 was $600,000, of which $150,000 represented amounts paid in excess of $106,800 to certain employees. $500,000 represented amounts paid to employees in excess of the $7,000 maximum subject to unemployment taxes. $150,000 of federal income taxes and $15,000 of union dues were withheld. The state unemployment tax is 1%, the federal unemployment tax is .8%, and the current F. I.C. A. tax is 7.65% on an employee’s wages to $106,800 and 1.45% in excess of $106,800. What amount should Teeter record as payroll tax expense? $197,700. $188,400. $38,400. $47,400.

Use the following information for questions 110 and 111.

Vargas Company has 35 employees who work 8-hour days and are paid hourly. On January 1, 2011, the company began a program of granting its employees 10 days of paid vacation each year. Vacation days earned in 2011 may first be taken on January 1, 2012. Information relative to these employees is as follows:

Hourly Vacation Days Earned Vacation Days Used.

Year Wages by Each Employee by Each Employee.

2013 23.75 10 10.

Vargas has chosen to accrue the liability for compensated absences at the current rates of pay in effect when the compensated time is earned.

What is the amount of expense relative to compensated absences that should be reported on Vargas’s income statement for 2011? $ 0 $57,400. $63,000. $60,200.

What is the amount of the accrued liability for compensated absences that should be reported at December 31, 2013? $79,100. $75,600. $66,500. $79,800.

CalCount pays a weekly payroll of $170,000 that includes federal taxes withheld of $25,400, FICA taxes withheld of $15,780, and 401(k) withholdings of $18,000. What is the effect of assets and liabilities from this transaction? Assets decrease $170,000 and liabilities do not change. Assets decrease $128,820 and liabilities increase $41,180. Assets decrease $128,820 and liabilities decrease $41,180. Assets decrease $110,820 and liabilities increase $59,180.

CalCount provides its employees two weeks of paid vacation per year. As of December 31, 65 employees have earned two weeks of vacation time to be taken the following year. If the average weekly salary for these employees is $1,140, what is the required journal entry? Debit Salaries and Wages Expense for $148,200 and credit Salaries and Wages Payable for $148,200. No journal entry required. Debit Salaries and Wages Payable for $147,600 and credit Salaries and Wages Expense for $147,600. Debit Salaries and Wages Expense for $74,100 and credit Salaries and Wages Payable for $74,100.

Tender Foot Inc. is involved in litigation regarding a faulty product sold in a prior year. The company has consulted with its attorney and determined that it is possible that they may lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the case, their attorney estimated that the amount of any payment would be $500,000. What is the required journal entry as a result of this litigation? Debit Litigation Expense for $500,000 and credit Litigation liability for $500,000. No journal entry is required. Debit Litigation Expense for $200,000 and credit Litigation Liability for $200,000. Debit Litigation Expense for $300,000 and credit Litigation Liability for $300,000.

Recycle Exploration is involved with innovative approaches to finding energy reserves. Recycle recently built a facility to extract natural gas at a cost of $15 million. However, Recycle is also legally responsible to remove the facility at the end of its useful life of twenty years. This cost is estimated to be $21 million (the present value of which is $8 million). What is the journal entry required to record the asset retirement obligation? No journal entry required. Debit Natural Gas Facility for $21,000,000 and credit Asset Retirement Obligation for $21,000,000 Debit Natural Gas Facility for $6,000,000 and credit Asset Retirement Obligation for $6,000,000. Debit Natural Gas Facility for $8,000,000 and credit Asset Retirement Obligation for $8,000,000. Warranty4U provides extended service contracts on electronic equipment sold through major retailers. The standard contract is for three years. During the current year, Warranty4U provided 42,000 such warranty contracts at an average price of $81 each. Related to these contracts, the company spent $400,000 servicing the contracts during the current year and expects to spend $2,100,000 more in the future. What is the net profit that the company will recognize in the current year related to these contracts? $902,000. $3,002,000. $300,667. $734,000.

Electronics4U manufactures high-end whole home electronic systems. The company provides a one-year warranty for all products sold. The company estimates that the warranty cost is $200 per unit sold and reported a liability for estimated warranty costs $7.8 million at the beginning of this year. If during the current year, the company sold 60,000 units for a total of $243 million and paid warranty claims of $9,000,000 on current and prior year sales, what amount of liability would the company report on its balance sheet at the end of the current year? $3,000,000. $4,200,000. $10,800,000. $12,000,000.

A company offers a cash rebate of $1 on each $4 package of light bulbs sold during 2012. Historically, 10% of customers mail in the rebate form. During 2012, 3,000,000 packages of light bulbs are sold, and 160,000 $1 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2012 financial statements dated December 31? $300,000; $300,000 $300,000; $140,000 $140,000; $140,000 $160,000; $140,000.

A company buys an oil rig for $2,000,000 on January 1, 2012. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $400,000 (present value at 10% is $154,220). 10% is an appropriate interest rate for this company. What expense should be recorded for 2012 as a result of these events? Depreciation expense of $240,000 Depreciation expense of $200,000 and interest expense of $15,422 Depreciation expense of $200,000 and interest expense of $40,000 Depreciation expense of $215,420 and interest expense of $15,422.

Ziegler Company self insures its property for fire and storm damage. If the company were to obtain insurance on the property, it would cost them $1,500,000 per year. The company estimates that on average it will incur losses of $1,200,000 per year. During 2012, $525,000 worth of losses were sustained. How much total expense and/or loss should be recognized by Ziegler Company for 2012? $525,000 in losses and no insurance expense $525,000 in losses and $675,000 in insurance expense $0 in losses and $1,200,000 in insurance expense $0 in losses and $1,500,000 in insurance expense.

A company offers a cash rebate of $2 on each $6 package of batteries sold during 2012. Historically, 10% of customers mail in the rebate form. During 2012, 6,000,000 packages of batteries are sold, and 210,000 $2 rebates are mailed to customers. What is the rebate expense and liability, respectively, shown on the 2012 financial statements dated December 31? $1,200,000; $1,200,000 $1,200,000; $780,000 $780,000; $780,000 $420,000; $780,000.

A company buys an oil rig for $3,000,000 on January 1, 2012. The life of the rig is 10 years and the expected cost to dismantle the rig at the end of 10 years is $600,000 (present value at 10% is $231,330). 10% is an appropriate interest rate for this company. What expense should be recorded for 2012 as a result of these events? Depreciation expense of $360,000 Depreciation expense of $300,000 and interest expense of $23,133 Depreciation expense of $300,000 and interest expense of $60,000 Depreciation expense of $323,133 and interest expense of $23,133.

During 2011, Vanpelt Co. introduced a new line of machines that carry a three-year warranty against manufacturer’s defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 4% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows:

Sales Actual Warranty Expenditures.

2011 $ 600,000 $ 9,000.

2012 1,500,000 65,000.

2013 2,100,000 135,000.

What amount should Vanpelt report as a liability at December 31, 2013?

Palmer Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops from Palmer Frosted Flakes boxes and $1. The company estimates that 60% of the boxtops will be redeemed. In 2012, the company sold 675,000 boxes of Frosted Flakes and customers redeemed 330,000 boxtops receiving 110,000 bowls. If the bowls cost Palmer Company $3 each, how much liability for outstanding premiums should be recorded at the end of 2012? $270,000 $50,000 $75,000 $138,000.

During 2011, Stabler Co. introduced a new line of machines that carry a three-year warranty against manufacturer’s defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 4% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows:

Sales Actual Warranty Expenditures.

2011 $ 400,000 $ 6,000.

2012 1,000,000 40,000.

2013 1,400,000 90,000.

What amount should Stabler report as a liability at December 31, 2013?

LeMay Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 4 boxtops from LeMay Frosted Flakes boxes and $1. The company estimates that 60% of the boxtops will be redeemed. In 2012, the company sold 500,000 boxes of Frosted Flakes and customers redeemed 220,000 boxtops receiving 55,000 bowls. If the bowls cost LeMay Company $3 each, how much liability for outstanding premiums should be recorded at the end of 2012? $150,000 $40,000 $60,000 $84,000.

Use the following information for questions 127, 128, and 129.

Mott Co. includes one coupon in each bag of dog food it sells. In return for eight coupons, customers receive a leash. The leashes cost Mott $3 each. Mott estimates that 40 percent of the coupons will be redeemed. Data for 2012 and 2013 are as follows:

Bags of dog food sold 500,000 600,000.

Leashes purchased 18,000 22,000.

Coupons redeemed 120,000 150,000.

Winter Co. is being sued for illness caused to local residents as a result of negligence on the company’s part in permitting the local residents to be exposed to highly toxic chemicals from its plant. Winter’s lawyer states that it is probable that Winter will lose the suit and be found liable for a judgment costing Winter anywhere from $1,600,000 to $8,000,000. However, the lawyer states that the most probable cost is $4,800,000. As a result of the above facts, Winter should accrue a loss contingency of $1,600,000 and disclose an additional contingency of up to $6,400,000. a loss contingency of $4,800,000 and disclose an additional contingency of up to $3,200,000. a loss contingency of $4,800,000 but not disclose any additional contingency. no loss contingency but disclose a contingency of $1,600,000 to $8,000,000.

Nance Company estimates its annual warranty expense as 2% of annual net sales. The following data relate to the calendar year 2012:

Net sales $1,500,000.

Warranty liability account.

Balance, Dec. 31, 2012 $10,000 debit before adjustment.

Balance, Dec. 31, 2012 50,000 credit after adjustment.

Which one of the following entries was made to record the 2012 estimated warranty expense?

Retained Earnings (prior-period adjustment) …….. 5,000.

In 2012, Payton Corporation began selling a new line of products that carry a two-year warranty against defects. Based upon past experience with other products, the estimated warranty costs related to dollar sales are as follows:

First year of warranty 2%

Second year of warranty 5%

Sales and actual warranty expenditures for 2012 and 2013 are presented below:

Sales $600,000 $800,000.

Actual warranty expenditures 20,000 40,000.

What is the estimated warranty liability at the end of 2013?

On January 3, 2012, Boyer Corp. owned a machine that had cost $300,000. The accumulated depreciation was $180,000, estimated salvage value was $18,000, and fair value was $480,000. On January 4, 2012, this machine was irreparably damaged by Pine Corp. and became worthless. In October 2012, a court awarded damages of $480,000 against Pine in favor of Boyer. At December 31, 2012, the final outcome of this case was awaiting appeal and was, therefore, uncertain. However, in the opinion of Boyer’s attorney, Pine’s appeal will be denied. At December 31, 2012, what amount should Boyer accrue for this gain contingency? $480,000. $390,000. $300,000. $ 0

Fuller Food Company distributes to consumers coupons which may be presented (on or before a stated expiration date) to grocers for discounts on certain products of Fuller. The grocers are reimbursed when they send the coupons to Fuller. In Fuller’s experience, 50% of such coupons are redeemed, and generally one month elapses between the date a grocer receives a coupon from a consumer and the date Fuller receives it. During 2012 Fuller issued two separate series of coupons as follows:

Consumer Amount Disbursed.

Issued On Total Value Expiration Date as of 12/31/12.

1/1/12 $500,000 6/30/12 $236,000.

7/1/12 720,000 12/31/12 300,000.

The only journal entries to date recorded debits to coupon expense and credits to cash of $715,000. The December 31, 2012 balance sheet should include a liability for unredeemed coupons of.

Presented below is information available for Morton Company.

Short-term investments 75,000.

Accounts receivable 61,000.

Prepaid expenses 30,000.

Total current assets $280,000.

Total current liabilities are $110,000. The acid-test ratio for Morton is.

Multiple Choice Answers—Computational.

Which of the following is generally associated with payables classified as accounts payable?

Periodic Payment Secured.

of Interest by Collateral.

On January 1, 2012, Beyer Co. leased a building to Heins Corp. for a ten-year term at an annual rental of $140,000. At inception of the lease, Beyer received $560,000 covering the first two years’ rent of $280,000 and a security deposit of $280,000. This deposit will not be returned to Heins upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $560,000 should be shown as a current and long-term liability, respectively, in Beyer’s December 31, 2012 balance sheet?

Current Liability Long-term Liability.

b. $140,000 $280,000.

c. $280,000 $280,000.

d. $280,000 $140,000.

On September 1, 2012, Herman Co. issued a note payable to National Bank in the amount of $1,800,000, bearing interest at 12%, and payable in three equal annual principal payments of $600,000. On this date, the bank’s prime rate was 11%. The first payment for interest and principal was made on September 1, 2013. At December 31, 2013, Herman should record accrued interest payable of $72,000. $66,000. $48,000. $44,000.

Included in Vernon Corp.’s liability account balances at December 31, 2012, were the following:

7% note payable issued October 1, 2012, maturing September 30, 2013 $250,000.

8% note payable issued April 1, 2012, payable in six equal annual.

installments of $150,000 beginning April 1, 2013 600,000.

Vernon’s December 31, 2012 financial statements were issued on March 31, 2013. On January 15, 2013, the entire $600,000 balance of the 8% note was refinanced by issuance of a long-term obligation payable in a lump sum. In addition, on March 10, 2013, Vernon consummated a noncancelable agreement with the lender to refinance the 7%, $250,000 note on a long-term basis, on readily determinable terms that have not yet been implemented. On the December 31, 2012 balance sheet, the amount of the notes payable that Vernon should classify as short-term obligations is.

Edge Company’s salaried employees are paid biweekly. Occasionally, advances made to employees are paid back by payroll deductions. Information relating to salaries for the calendar year 2013 is as follows:

Employee advances $24,000 $ 36,000.

Accrued salaries payable 130,000 ?

Salaries expense during the year 1,300,000.

Salaries paid during the year (gross) 1,250,000.

At December 31, 2013, what amount should Edge report for accrued salaries payable?

Risen Corp.’s payroll for the pay period ended October 31, 2012 is summarized as follows:

Federal Amount of Wages Subject.

Department Total Income Tax to Payroll Taxes.

Payroll Wages Withheld F. I.C. A. Unemployment.

Factory $ 75,000 $ 9,000 $70,000 $32,000.

Sales 22,000 3,000 16,000 2,000.

Office 18,000 2,000 8,000 —

$115,000 $14,000 $94,000 $34,000.

Assume the following payroll tax rates:

F. I.C. A. for employer and employee 7% each.

What amount should Risen accrue as its share of payroll taxes in its October 31, 2012 balance sheet?

Felton Co. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to unearned service contract revenues. This account had a balance of $720,000 at December 31, 2011 before year-end adjustment. Service contract costs are charged as incurred to the service contract expense account, which had a balance of $180,000 at December 31, 2011. Outstanding service contracts at December 31, 2011 expire as follows:

During 2012 During 2013 During 2014.

$150,000 $240,000 $105,000.

What amount should be reported as unearned service contract revenues in Felton’s December 31, 2011 balance sheet?

Yount Trading Stamp Co. records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Yount’s past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Yount’s liability for stamp redemptions was $6,000,000 at December 31, 2011. Additional information for 2012 is as follows:

Stamp service revenue from stamps sold to licensees $4,000,000.

Cost of redemptions 2,720,000.

If all the stamps sold in 2012 were presented for redemption in 2013, the redemption cost would be $2,000,000. What amount should Yount report as a liability for stamp redemptions at December 31, 2012?

Neer Co. has a probable loss that can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The loss accrual should be zero. the maximum of the range. the mean of the range. the minimum of the range.

During 2012, Eaton Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to dollar sales are 2% within 12 months following sale and 3% in the second 12 months following sale. Sales and actual warranty expenditures for the years ended December 31, 2012 and 2013 are as follows:

2012 $ 800,000 $12,000.

2013 1,000,000 35,000.

At December 31, 2013, Eaton should report an estimated warranty liability of.

In March 2013, an explosion occurred at Kirk Co.’s plant, causing damage to area properties. By May 2013, no claims had yet been asserted against Kirk. However, Kirk’s management and legal counsel concluded that it was reasonably possible that Kirk would be held responsible for negligence, and that $4,000,000 would be a reasonable estimate of the damages. Kirk’s $5,000,000 comprehensive public liability policy contains a $400,000 deductible clause. In Kirk’s December 31, 2012 financial statements, for which the auditor’s fieldwork was completed in April 2013, how should this casualty be reported? As a note disclosing a possible liability of $4,000,000. As an accrued liability of $400,000. As a note disclosing a possible liability of $400,000. No note disclosure of accrual is required for 2012 because the event occurred in 2013.

Multiple Choice Answers—CPA Adapted.

1. Short-term debt obligations are classified as current liabilities unless an agreement to refinance is completed before the financial statements are issued.

2. For purposes of recognizing a provision,”probable” is defined as more likely than not.

3. A Provision differs from other liabilities in that there is greater uncertainty about the timing and amount of settlement.

4. IFRS allows for reduced disclosure of contingent liabilities if the disclosure could increase the company`s chance of losing a lawsuit.

5. Contingent liabilities are not reported in the financial statements but may be disclosed in the notes to the financial statements if the likelihood of an unfavorable outcome is possible.

6. A company can exclude a short-term obligation from current liablities if it intends to refinance the obligation and has an unconditional right to defer settlement of the obligation for at least 12 months following the due date.

7. Provisions are only recorded if it is likely that the company will have to settle an obligation at some point in the future.

8. An onerous contract is one in which the unavoidable costs of satisfying the obligations outweigh the economic benefits to be received.

9. Contingent assets are not reported in the statement of financial position.

IFRS uses the term “contigent” for assets and liabilities not recognized in the financial statement.

IFRS questions are available at the end of this chapter.

1. Companies usually make bond interest payments semiannually, although the interest rate is generally expressed as an annual rate.

2. A mortgage bond is referred to as a debenture bond.

3. Bond issues that mature in installments are called serial bonds.

4. If the market rate is greater than the coupon rate, bonds will be sold at a premium.

5. The interest rate written in the terms of the bond indenture is called the effective yield or market rate.

6. The stated rate is the same as the coupon rate.

7. Amortization of a premium increases bond interest expense, while amortization of a discount decreases bond interest expense.

8. A bond may only be issued on an interest payment date.

9. The cash paid for interest will always be greater than interest expense when using effective-interest amortization for a bond.

10. Bond issue costs are capitalized as a deferred charge and amortized to expense over the life of the bond issue.

11. The replacement of an existing bond issue with a new one is called refunding.

12. If a long-term note payable has a stated interest rate, that rate should be considered to be the effective rate.

13. The implicit interest rate is the rate that equates the cash received with the amounts received in the future.

14. An unrealized holding gain or loss is the net change in the fair value of the liability from one period to another, exclusive of interest expense recognized but not recorded.

15. Off-balance-sheet financing is an attempt to borrow monies in such a way to minimize the reporting of debt on the balance sheet.

16. The debt to total assets ratio will go up if an equal amount of assets and liabilities are added to the balance sheet.

17. If a company plans to retire long-term debt from a bond retirement fund, it should report the debt as current.

18. The times interest earned ratio is computed by dividing income before interest expense by interest expense.

*19. The loss to be recognized by a creditor on an impaired loan is the difference between the investment in the loan and the expected undiscounted future cash flows from the loan.

*20. In a troubled debt restructuring, the loss recognized by the creditor will equal the gain recognized by the debtor.

True False Answers—Conceptual.

21. An example of an item which is not a liability is.

dividends payable in stock. advances from customers on contracts. accrued estimated warranty costs. the portion of long-term debt due within one year.

22. The covenants and other terms of the agreement between the issuer of bonds and the lender are set forth in the.

23. The term used for bonds that are unsecured as to principal is.

P 24. Bonds for which the owners’ names are not registered with the issuing corporation are called.

S 25. Bonds that pay no interest unless the issuing company is profitable are called.

S 26. If bonds are issued initially at a premium and the effective-interest method of amortization is used, interest expense in the earlier years will be.

greater than if the straight-line method were used. greater than the amount of the interest payments.

c the same as if the straight-line method were used.

less than if the straight-line method were used.

27. The interest rate written in the terms of the bond indenture is known as the.

coupon rate. nominal rate. stated rate. coupon rate, nominal rate, or stated rate.

28. The rate of interest actually earned by bondholders is called the.

Use the following information for questions 29 and 30:

Fox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%.

29. One step in calculating the issue price of the bonds is to multiply the principal by the table value for.

10 periods and 10% from the present value of 1 table. 20 periods and 5% from the present value of 1 table. 10 periods and 8% from the present value of 1 table. 20 periods and 4% from the present value of 1 table.

30. Another step in calculating the issue price of the bonds is to.

multiply $10,000 by the table value for 10 periods and 10% from the present value of an annuity table. multiply $10,000 by the table value for 20 periods and 5% from the present value of an annuity table. multiply $10,000 by the table value for 20 periods and 4% from the present value of an annuity table. nenhum desses.

31. Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that.

the effective yield or market rate of interest exceeded the stated (nominal) rate. the nominal rate of interest exceeded the market rate. the market and nominal rates coincided. no necessary relationship exists between the two rates.

32. If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the earlier years will.

exceed what it would have been had the effective-interest method of amortization been used. be less than what it would have been had the effective-interest method of amortization been used. be the same as what it would have been had the effective-interest method of amortiza-tion been used. be less than the stated (nominal) rate of interest.

33. Under the effective-interest method of bond discount or premium amortization, the periodic interest expense is equal to.

the stated (nominal) rate of interest multiplied by the face value of the bonds. the market rate of interest multiplied by the face value of the bonds. the stated rate multiplied by the beginning-of-period carrying amount of the bonds. the market rate multiplied by the beginning-of-period carrying amount of the bonds.

34. When the effective-interest method is used to amortize bond premium or discount, the periodic amortization will.

increase if the bonds were issued at a discount. decrease if the bonds were issued at a premium. increase if the bonds were issued at a premium. increase if the bonds were issued at either a discount or a premium.

35. If bonds are issued between interest dates, the entry on the books of the issuing corporation could include a.

debit to Interest Payable. credit to Interest Receivable. credit to Interest Expense. credit to Unearned Interest.

36. When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be.

decreased by accrued interest from June 1 to November 1. decreased by accrued interest from May 1 to June 1. increased by accrued interest from June 1 to November 1. increased by accrued interest from May 1 to June 1.

37. Theoretically, the costs of issuing bonds could be.

expensed when incurred. reported as a reduction of the bond liability. debited to a deferred charge account and amortized over the life of the bonds. any of these.

38. The printing costs and legal fees associated with the issuance of bonds should.

be expensed when incurred. be reported as a deduction from the face amount of bonds payable. be accumulated in a deferred charge account and amortized over the life of the bonds. not be reported as an expense until the period the bonds mature or are retired.

39. Treasury bonds should be shown on the balance sheet as.

an asset. a deduction from bonds payable issued to arrive at net bonds payable and outstanding. a reduction of stockholders’ equity. both an asset and a liability.

40. An early extinguishment of bonds payable, which were originally issued at a premium, is made by purchase of the bonds between interest dates. At the time of reacquisition.

any costs of issuing the bonds must be amortized up to the purchase date. the premium must be amortized up to the purchase date. interest must be accrued from the last interest date to the purchase date. all of these.

41. The generally accepted method of accounting for gains or losses from the early extinguishment of debt treats any gain or loss as.

an adjustment to the cost basis of the asset obtained by the debt issue. an amount that should be considered a cash adjustment to the cost of any other debt issued over the remaining life of the old debt instrument. an amount received or paid to obtain a new debt instrument and, as such, should be amortized over the life of the new debt. a difference between the reacquisition price and the net carrying amount of the debt which should be recognized in the period of redemption.

P 42. “In-substance defeasance” is a term used to refer to an arrangement whereby.

a company gets another company to cover its payments due on long-term debt. a governmental unit issues debt instruments to corporations. a company provides for the future repayment of a long-term debt by placing purchased securities in an irrevocable trust. a company legally extinguishes debt before its due date.

P 43. A corporation borrowed money from a bank to build a building. The long-term note signed by the corporation is secured by a mortgage that pledges title to the building as security for the loan. The corporation is to pay the bank $80,000 each year for 10 years to repay the loan. Which of the following relationships can you expect to apply to the situation?

The balance of mortgage payable at a given balance sheet date will be reported as a long-term liability. The balance of mortgage payable will remain a constant amount over the 10-year period. The amount of interest expense will decrease each period the loan is outstanding, while the portion of the annual payment applied to the loan principal will increase each period. The amount of interest expense will remain constant over the 10-year period.

S 44. A debt instrument with no ready market is exchanged for property whose fair value is currently indeterminable. When such a transaction takes place.

the present value of the debt instrument must be approximated using an imputed interest rate. it should not be recorded on the books of either party until the fair value of the property becomes evident. the board of directors of the entity receiving the property should estimate a value for the property that will serve as a basis for the transaction. the directors of both entities involved in the transaction should negotiate a value to be assigned to the property.

45. When a note payable is issued for property, goods, or services, the present value of the note is measured by.

the fair value of the property, goods, or services. the fair value of the note. using an imputed interest rate to discount all future payments on the note. any of these.

46. When a note payable is exchanged for property, goods, or services, the stated interest rate is presumed to be fair unless.

no interest rate is stated. the stated interest rate is unreasonable. the stated face amount of the note is materially different from the current cash sales price for similar items or from current fair value of the note. any of these.

47. If a company chooses the fair value option, a decrease in the fair value of the liability is recorded by crediting.

Bonds Payable. Gain on Restructuring of Debt. Unrealized Holding Gain/Loss-Income. Nenhum desses.

48. Which of the following is an example of “off-balance-sheet financing”?

Non-consolidated subsidiary. Special purpose entity. Operating leases. 1 2 3 All of these are examples of “off-balance-sheet financing.”

S 49. When a business enterprise enters into what is referred to as off-balance-sheet financing, the company.

is attempting to conceal the debt from shareholders by having no information about the debt included in the balance sheet. wishes to confine all information related to the debt to the income statement and the statement of cash flow. can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost. is in violation of generally accepted accounting principles.

S 50. Long-term debt that matures within one year and is to be converted into stock should be reported.

as a current liability. in a special section between liabilities and stockholders’ equity. as noncurrent. as noncurrent and accompanied with a note explaining the method to be used in its liquidation.

51. Which of the following must be disclosed relative to long-term debt maturities and sinking fund requirements?

The present value of future payments for sinking fund requirements and long-term debt maturities during each of the next five years. The present value of scheduled interest payments on long-term debt during each of the next five years. The amount of scheduled interest payments on long-term debt during each of the next five years. The amount of future payments for sinking fund requirements and long-term debt maturities during each of the next five years.

52. Note disclosures for long-term debt generally include all of the following except.

assets pledged as security. call provisions and conversion privileges. restrictions imposed by the creditor. names of specific creditors.

53. The times interest earned ratio is computed by dividing.

net income by interest expense. income before taxes by interest expense. income before income taxes and interest expense by interest expense. net income and interest expense by interest expense.

54. The debt to total assets ratio is computed by dividing.

current liabilities by total assets. long-term liabilities by total assets. total liabilities by total assets. total assets by total liabilities.

*55. In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows,

a loss should be recognized by the debtor. a gain should be recognized by the debtor. a new effective-interest rate must be computed. no interest expense or revenue should be recognized in the future.

*56. A troubled debt restructuring will generally result in a.

loss by the debtor and a gain by the creditor. loss by both the debtor and the creditor. gain by both the debtor and the creditor. gain by the debtor and a loss by the creditor.

*57. In a troubled debt restructuring in which the debt is restructured by a transfer of assets with a fair value less than the carrying amount of the debt, the debtor would recognize.

no gain or loss on the restructuring. a gain on the restructuring. a loss on the restructuring. nenhum desses.

*58. In a troubled debt restructuring in which the debt is continued with modified terms, a gain should be recognized at the date of restructure, but no interest expense should be recognized over the remaining life of the debt, whenever the.

carrying amount of the pre-restructure debt is less than the total future cash flows. carrying amount of the pre-restructure debt is greater than the total future cash flows. present value of the pre-restructure debt is less than the present value of the future cash flows. present value of the pre-restructure debt is greater than the present value of the future cash flows.

*59. In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows, the creditor should.

compute a new effective-interest rate. not recognize a loss. calculate its loss using the historical effective rate of the loan. calculate its loss using the current effective rate of the loan.

Use the following information for questions 60 through 62:

On January 1, 2012, Ellison Co. issued eight-year bonds with a face value of $2,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:

60. The present value of the principal is.

61. The present value of the interest is.

62. The issue price of the bonds is.

63. Downing Company issues $3,000,000, 6%, 5-year bonds dated January 1, 2012 on January 1, 2012. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue?

Present value of a single sum for 5 periods.

Present value of a single sum for 10 periods.

Present value of an annuity for 5 periods.

Present value of an annuity for 10 periods.

$3,000,000 $3,129,896 $3,131,285 $3,130,385.

64. Feller Company issues $10,000,000 of 10-year, 9% bonds on March 1, 2012 at 97 plus accrued interest. The bonds are dated January 1, 2012, and pay interest on June 30 and December 31. What is the total cash received on the issue date?

65. Everhart Company issues $15,000,000, 6%, 5-year bonds dated January 1, 2012 on January 1, 2012. The bonds pays interest semiannually on June 30 and December 31.The bonds are issued to yield 5%. What are the proceeds from the bond issue?

Present value of a single sum for 5 periods.

Present value of a single sum for 10 periods.

Present value of an annuity for 5 periods.

Present value of an annuity for 10 periods.

66. Farmer Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2012 at 97 plus accrued interest. The bonds are dated January 1, 2012, and pay interest on June 30 and December 31. What is the total cash received on the issue date?

67. A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012.Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,109. Using effective-interest amortization, how much interest expense will be recognized in 2012?

68. A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012.Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,109. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2012 balance sheet?

69. A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2011.Interest is paid on June 30 and December 31.The proceeds from the bonds are $14,703,109.Using straight-line amortization, what is the carrying value of the bonds on December 31, 2013?

70. A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012.Interest is paid on June 30 and December 31. The proceeds from the bonds are $14,703,109.What is interest expense for 2013, using straight-line amortization?

71. A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012.Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using effective-interest amortization, how much interest expense will be recognized in 2012?

72. A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012.Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2012 balance sheet?

73. A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2011. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072. Using straight-line amortization, what is the carrying value of the bonds on December 31, 2013?

74. A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012. Interest is paid on June 30 and December 31. The proceeds from the bonds are $9,802,072.What is interest expense for 2013, using straight-line amortization?

75. On January 1, 2012, Huber Co. sold 12% bonds with a face value of $800,000. The bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $861,600 to yield 10%. Using the effective-interest method of amortization, interest expense for 2012 is.

76. On January 2, 2012, a calendar-year corporation sold 8% bonds with a face value of $900,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $830,400 to yield 10%. Using the effective-interest method of computing interest, how much should be charged to interest expense in 2012?

The following information applies to both questions 77 and 78.

On October 1, 2012 Macklin Corporation issued 5%, 10-year bonds with a face value of $2,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis.

77. The entry to record the issuance of the bonds would include a credit of.

$50,000 to Interest Payable. $80,000 to Discount on Bonds Payable. $1,920,000 to Bonds Payable. $80,000 to Premium on Bonds Payable.

78. Bond interest expense reported on the December 31, 2012 income statement of Macklin Corporation would be.

The following information applies to both questions 79 and 80.

On October 1, 2012 Bartley Corporation issued 5%, 10-year bonds with a face value of $3,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis.

79. The entry to record the issuance of the bonds would include a.

credit of $75,000 to Interest Payable. credit of $120,000 to Premium on Bonds Payable. credit of $2,880,000 to Bonds Payable. debit of $120,000 to Discount on Bonds Payable.

80. Bond interest expense reported on the December 31, 2012 income statement of Bartley Corporation would be.

81. At the beginning of 2012, Wallace Corporation issued 10% bonds with a face value of $1,500,000. These bonds mature in the five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $1,389,600 to yield 12%. Wallace uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2012? (Round your answer to the nearest dollar.)

82. On January 1, Patterson Inc. issued $3,000,000, 9% bonds for $2,817,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Patterson uses the effective-interest method of amortizing bond discount. At the end of the first year, Patterson should report unamortized bond discount of.

83. On January 1, Martinez Inc. issued $4,000,000, 11% bonds for $4,260,000. The market rate of interest for these bonds is 10%. Interest is payable annually on December 31. Martinez uses the effective-interest method of amortizing bond premium. At the end of the first year, Martinez should report unamortized bond premium of:

84. At the beginning of 2012, Winston Corporation issued 10% bonds with a face value of $1,200,000. These bonds mature in five years, and interest is paid semiannually on June 30 and December 31. The bonds were sold for $1,111,680 to yield 12%. Winston uses a calendar-year reporting period. Using the effective-interest method of amortization, what amount of interest expense should be reported for 2012? (Round your answer to the nearest dollar.)

85. Kant Corporation retires its $500,000 face value bonds at 102 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $481,250. The entry to record the redemption will include a.

credit of $18,750 to Loss on Bond Redemption. credit of $18,750 to Discount on Bonds Payable. debit of $28,750 to Gain on Bond Redemption. debit of $10,000 to Premium on Bonds Payable.

86. Carr Corporation retires its $500,000 face value bonds at 105 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $518,725. The entry to record the redemption will include a.

credit of $18,725 to Loss on Bond Redemption. debit of $18,725 to Premium on Bonds Payable. credit of $6,275 to Gain on Bond Redemption. debit of $25,000 to Premium on Bonds Payable.

87. At December 31, 2012 the following balances existed on the books of Foxworth Corporation:

Bonds Payable $3,000,000.

Discount on Bonds Payable 240,000.

Interest Payable 75,000.

Unamortized Bond Issue Costs 180,000.

If the bonds are retired on January 1, 2013, at 102, what will Foxworth report as a loss on redemption?

88. At December 31, 2012 the following balances existed on the books of Rentro Corporation:

Bonds Payable $2,500,000.

Discount on Bonds Payable 200,000.

Interest Payable 60,000.

Unamortized Bond Issue Costs 150,000.

If the bonds are retired on January 1, 2013, at 102, what will Rentro report as a loss on redemption?

89. The December 31, 2012, balance sheet of Hess Corporation includes the following items:

9% bonds payable due December 31, 2021 $2,000,000.

Unamortized premium on bonds payable 54,000.

The bonds were issued on December 31, 2011, at 103, with interest payable on July 1 and December 31 of each year. Hess uses straight-line amortization. On March 1, 2013, Hess retired $800,000 of these bonds at 98 plus accrued interest. What should Hess record as a gain on retirement of these bonds? Ignore os impostos.

90. On January 1, 2006, Hernandez Corporation issued $3,600,000 of 10% ten-year bonds at 103. The bonds are callable at the option of Hernandez at 105. Hernandez has recorded amortization of the bond premium on the straight-line method (which was not materially different from the effective-interest method).

On December 31, 2012, when the fair value of the bonds was 96, Hernandez repurchased $800,000 of the bonds in the open market at 96. Hernandez has recorded interest and amortization for 2012. Ignoring income taxes and assuming that the gain is material, Hernandez should report this reacquisition as.

91. The 10% bonds payable of Nixon Company had a net carrying amount of $760,000 on December 31, 2012. The bonds, which had a face value of $800,000, were issued at a discount to yield 12%. The amortization of the bond discount was recorded under the effective-interest method. Interest was paid on January 1 and July 1 of each year. Em.

July 2, 2013, several years before their maturity, Nixon retired the bonds at 102. The interest payment on July 1, 2013 was made as scheduled. What is the loss that Nixon should record on the early retirement of the bonds on July 2, 2013? Ignore os impostos.

92. A corporation called an outstanding bond obligation four years before maturity. At that time there was an unamortized discount of $600,000. To extinguish this debt, the company had to pay a call premium of $200,000. Ignoring income tax considerations , how should these amounts be treated for accounting purposes?

Amortize $800,000 over four years. Charge $800,000 to a loss in the year of extinguishment. Charge $200,000 to a loss in the year of extinguishment and amortize $600,000 over four years. Either amortize $800,000 over four years or charge $800,000 to a loss immediately, whichever management selects.

93. The 12% bonds payable of Nyman Co. had a carrying amount of $2,080,000 on.

December 31, 2012. The bonds, which had a face value of $2,000,000, were issued at a premium to yield 10%. Nyman uses the effective-interest method of amortization. Interest is paid on June 30 and December 31. On June 30, 2013, several years before their maturity, Nyman retired the bonds at 104 plus accrued interest. The loss on retirement, ignoring taxes, is.

94. Didde Company issues $15,000,000 face value of bonds at 96 on January 1, 2011. The bonds are dated January 1, 2011, pay interest semiannually at 8% on June 30 and December 31, and mature in 10 years. Straight-line amortization is used for discounts and premiums. On September 1, 2014, $9,000,000 of the bonds are called at 102 plus accrued interest. What gain or loss would be recognized on the called bonds on September 1, 2014?

95. Cortez Company issues $3,000,000 face value of bonds at 96 on January 1, 2011. The bonds are dated January 1, 2011, pay interest semiannually at 8% on June 30 and December 31, and mature in 10 years. Straight-line amortization is used for discounts and premiums. On September 1, 2014, $1,800,000 of the bonds are called at 102 plus accrued interest. What gain or loss would be recognized on the called bonds on September 1, 2014?

96. On January 1, 2012, Ann Price loaned $90,156 to Joe Kiger. A zero-interest-bearing note (face amount, $120,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be repaid on December 31, 2014. The prevailing rate of interest for a loan of this type is 10%. The present value of $120,000 at 10% for three years is $90,156. What amount of interest income should Ms. Price recognize in 2012?

97. On January 1, 2012, Jacobs Company sold property to Dains Company which originally cost Jacobs $950,000. There was no established exchange price for this property. Danis gave Jacobs a $1,500,000 zero-interest-bearing note payable in three equal annual installments of $500,000 with the first payment due December 31, 2012. The note has no ready market. The prevailing rate of interest for a note of this type is 10%. The present value of a $1,500,000 note payable in three equal annual installments of $500,000 at a 10% rate of interest is $1,243,500. What is the amount of interest income that should be recognized by Jacobs in 2012, using the effective-interest method?

98. On January 1, 2012, Crown Company sold property to Leary Company. There was no established exchange price for the property, and Leary gave Crown a $3,000,000 zero-interest-bearing note payable in 5 equal annual installments of $600,000, with the first payment due December 31, 2012. The prevailing rate of interest for a note of this type is 9%. The present value of the note at 9% was $2,163,000 at January 1, 2012. What should be the balance of the Discount on Notes Payable account on the books of Leary at December 31, 2012 after adjusting entries are made, assuming that the effective-interest method is used?

99. Putnam Company’s 2012 financial statements contain the following selected data:

Income taxes $40,000.

Interest expense 25,000.

Net income 60,000.

Putnam’s times interest earned for 2012 is.

In the recent year Hill Corporation had net income of $280,000, interest expense of $60,000, and tax expense of $80,000. What was Hill Corporation’s times interest earned ratio for the year? 7.0 5.0 4.7 3.7.

In recent year Cey Corporation had net income of $350,000, interest expense of $70,000, and a times interest earned ratio of 9. What was Cey Corporation’s income before taxes for the year? $700,000 $630,000 $560,000 None of the above.

The adjusted trial balance for Lifesaver Corp. at the end of the current year, 2012, contained the following accounts.

5-year Bonds Payable 8% $2,000,000.

Interest Payable 50,000.

Premium on Bonds Payable 100,000.

Notes Payable (3 mo.) 40,000.

Notes Payable (5 yr.) 165,000.

Mortgage Payable ($15,000 due currently) 200,000.

Salaries and wages Payable 18,000.

Income Taxes Payable (due 3/15 of 2013) 25,000.

The total long-term liabilities reported on the balance sheet are.

Use the following information for questions *103 through *105:

On December 31, 2010, Nolte Co. is in financial difficulty and cannot pay a note due that day. It is a $1,200,000 note with $120,000 accrued interest payable to Piper, Inc. Piper agrees to accept from Nolte equipment that has a fair value of $580,000, an original cost of $960,000, and accumulated depreciation of $460,000. Piper also forgives the accrued interest, extends the maturity date to December 31, 2013, reduces the face amount of the note to $500,000, and reduces the interest rate to 6%, with interest payable at the end of each year.

*103. Nolte should recognize a gain or loss on the transfer of the equipment of.

*104. Nolte should recognize a gain on the partial settlement and restructure of the debt of.

*105. Nolte should record interest expense for 2013 of.

Multiple Choice Answers—Computational.

On July 1, 2012, Spear Co. issued 3,000 of its 10%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, 2012 and mature on April 1, 2022. Interest is payable semiannually on April 1 and October 1. What amount did Spear receive from the bond issuance? $3,045,000 $3,000,000 $2,970,000 $2,895,000.

On January 1, 2012, Solis Co. issued its 10% bonds in the face amount of $4,000,000, which mature on January 1, 2022. The bonds were issued for $4,540,000 to yield 8%, resulting in bond premium of $540,000. Solis uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2012, Solis’s adjusted unamortized bond premium should be $540,000. $503,200. $486,000. $406,000.

On July 1, 2011, Noble, Inc. issued 9% bonds in the face amount of $10,000,000, which mature on July 1, 2017. The bonds were issued for $9,390,000 to yield 10%, resulting in a bond discount of $610,000. Noble uses the effective-interest method of amortizing bond discount. Interest is payable annually on June 30. At June 30, 2013, Noble’s unamortized bond discount should be $528,100. $510,000. $488,000. $430,000.

On January 1, 2012, Huff Co. sold $3,000,000 of its 10% bonds for $2,655,888 to yield 12%. Interest is payable semiannually on January 1 and July 1. What amount should Huff report as interest expense for the six months ended June 30, 2012? $132,798 $150,000 $159,353 $180,000.

On January 1, 2013, Doty Co. redeemed its 15-year bonds of $3,500,000 par value for 102. They were originally issued on January 1, 2001 at 98 with a maturity date of.

January 1, 2016. The bond issue costs relating to this transaction were $210,000. Doty amortizes discounts, premiums, and bond issue costs using the straight-line method. What amount of loss should Doty recognize on the redemption of these bonds (ignore taxes)? $126,000 $84,000 $70,000 $0.

On its December 31, 2012 balance sheet, Emig Corp. reported bonds payable of $9,000,000 and related unamortized bond issue costs of $480,000. The bonds had been issued at par. On January 2, 2013, Emig retired $4,500,000 of the outstanding bonds at par plus a call premium of $105,000. What amount should Emig report in its 2013 income statement as loss on extinguishment of debt (ignore taxes)? $0 $105,000 $240,000 $345,000.

On January 1, 2008, Goll Corp. issued 4,000 of its 10%, $1,000 bonds for $4,160,000. These bonds were to mature on January 1, 2016 but were callable at 101 any time after December 31, 2011. Interest was payable semiannually on July 1 and January 1. On.

July 1, 2013, Goll called all of the bonds and retired them. Bond premium was amortized on a straight-line basis. Before income taxes, Goll’s gain or loss in 2013 on this early extinguishment of debt was $120,000 gain. $48,000 gain. $40,000 loss. $32,000 gain.

On June 30, 2013, Omara Co. had outstanding 8%, $4,000,000 face amount, 15-year bonds maturing on June 30, 2023. Interest is payable on June 30 and December 31. The unamortized balances in the bond discount and deferred bond issue costs accounts on June 30, 2013 were $140,000 and $40,000, respectively. On June 30, 2013, Omara acquired all of these bonds at 94 and retired them. What net carrying amount should be used in computing gain or loss on this early extinguishment of debt? $3,960,000. $3,860,000. $3,820,000. $3,760,000.

A ten-year bond was issued in 2011 at a discount with a call provision to retire the bonds. When the bond issuer exercised the call provision on an interest date in 2013, the carrying amount of the bond was less than the call price. The amount of bond liability removed from the accounts in 2013 should have equaled the call price. call price less unamortized discount. face amount less unamortized discount. face amount plus unamortized discount.

Paige Co. took advantage of market conditions to refund debt. This was the fourth refunding operation carried out by Paige within the last three years. The excess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a gain, net of income taxes. loss, net of income taxes. part of continuing operations. deferred credit to be amortized over the life of the new debt.

*116. Eddy Co. is indebted to Cole under a $600,000, 12%, three-year note dated.

December 31, 2011. Because of Eddy’s financial difficulties developing in 2013, Eddy owed accrued interest of $72,000 on the note at December 31, 2013. Under a troubled debt restructuring, on December 31, 2013, Cole agreed to settle the note and accrued interest for a tract of land having a fair value of $540,000. Eddy’s acquisition cost of the land is $435,000. Ignoring income taxes, on its 2013 income statement Eddy should report as a result of the troubled debt restructuring.

Gain on Disposal Restructuring Gain.

d. $105,000 $132,000.

Multiple Choice Answers—CPA Adapted.

Similar to U. S. practice, IFRS requires that companies present current and noncurrent liabilities on the face of the balance sheet, with current liabilities generally presented in order of liquidity.

Similar to U. S. practice, IFRS requires that companies present current and noncurrent liabilities on the face of the balance sheet, with current liabilities generally presented in order of magnitude.

Both IFRS and U. S. GAAP prohibit the recognition of liabilities for future losses.

IFRS and U. S. GAAP are similar in the treatment of asset retirement obligations.

The recognition criteria for an asset retirement obligation (ARO) are more stringent under IFRS.

IFRS and U. S. GAAP are dissimilar in their treatment of contingencies.

The criteria for recognizing contingent assets are more stringent under U. S. GAAP.

Under IFRS, the measurement of a provision related to a contingency is based on an average estimate of the expenditure required to settle the obligation.

U. S. GAAP permits recognition of a restructuring liability, once a company has committed to a restructuring plan.

The recognition criteria for an ARO are more stringent under U. S. GAAP: The ARO is not recognized unless there is a present legal obligation and the fair value of the obligation can be reasonably estimated.

Multiple Choice Questions.

The primary IFRS related to reporting and recognition of liabilities is found in IAS 10 and IAS 39. IAS 17 and IAS 23. IAS 1 and IAS 37. IAS 27 and IAS 32. Similar to U. S. practice, IFRS requires that companies present current and noncurrent liabilities on the face of the balance sheet with current liabilities generally presented in order of magnitude. presented in alphabetic order. presented in order of liquidity. presented in the order in which they were incurred.

Under IFRS, the measurement of a provision related to a contingency is based on the best estimate of the expenditure required to settle the obligation. the minimum amount from among a number of alternative estimates. an average from among a number of alternative estimates. whatever management feels that shareholders would be willing to accept because of the impact on current earnings.

Both U. S. GAAP and IFRS prohibit the recognition of a restructuring liability, once a company has committed to a restructuring plan. the recognition of liabilities for future losses. communicating information on a restructuring plan to employees, before a liability can be established. tudo acima.

IFRS and U. S. GAAP are similar in the treatment of asset retirement obligations (AROs). significantly different when it comes to the treatment of asset retirement obligations (AROs). continuing to evolve in the area of asset retirement obligations (AROs). in conflict with respect to the accounting for and presentation of asset retirement obligations (AROs).

Both IFRS and U. S. GAAP permit valuation of long-term debt and other liabilities at present value discounted at the firm’s cost of capital. current market values of the obligations, based on changes in the discount rate with unrealized gains and losses reflected in a separate account in stockholders’ equity. fair value with gains and losses on changes in fair value recorded in income in certain situations. historic costs without reflecting changes in valuation as obligations will be retired at their maturity date.

As there is no comparable institution to the SEC in international securities markets, many international companies (those not registered with the SEC) voluntarily adhere to SEC criteria in providing information related to contractual obligations. are not required to provide disclosures such as those related to contractual obligations. follow the requirements established for contractual obligations put forth by the IASB. follow the requirements established for contractual obligations put forth by the FASB.

Under U. S. GAAP, contingent assets for insurance recoveries are recognized if __________; IFRS requires the recovery be “___________” before recognition of an asset is permitted. probable and virtually certain possible and very likely possible and definite certain and probable.

IFRS rules for establishing restructuring liabilities could be used as an earnings management tool because IFRS rules are more-stringent that U. S. GAAP. less-stringent that U. S. GAAP. virtually the same as U. S. GAAP. totally different than U. S. GAAP.

A concern with IFRS is that its less-stringent rules for establishing restructuring liabilities could be used as a more appropriate method than that employed under U. S. GAAP. an appropriate method, but complex and difficult to explain to shareholders. a method readily employed to make the understanding of financial information more comprehensible to shareholders. an earinings management tool.

Answers to multiple choice:

Briefly describe some of the similarities and differences between U. S. GAAP and IFRS with respect to the accounting for liabilities.

1. Among the similarities are: (1) IFRS requires that companies present current and non-current liabilities on the face of the balance sheet, with current liabilities generally presented in order of liquidity, (2) Both GAAPs prohibit the recognition of liabilities for future losses; (3) IFRS and U. S. GAAP are similar in the treatment of asset retirement obligations (AROs), and (4) IFRS and U. S. GAAP are similar in their treatment of contingencies.

Briefly discuss how accounting convergence efforts addressing liabilities is related to the IASB/FASB conceptual framework project.

IFRS questions are available at the end of this chapter.

1. A corporation is incorporated in only one state regardless of the number of states in which it operates.

2. The preemptive right allows stockholders the right to vote for directors of the company.

3. Common stock is the residual corporate interest that bears the ultimate risks of loss.

4. Earned capital consists of additional paid-in capital and retained earnings.

5. True no-par stock should be carried in the accounts at issue price without any additional paid-in capital reported.

6. Companies allocate the proceeds received from a lump-sum sale of securities based on the securities’ par values.

7. Companies should record stock issued for services or noncash property at either the fair value of the stock issued or the fair value of the consideration received.

8. Treasury stock is a company’s own stock that has been reacquired and retired.

9. The cost method records all transactions in treasury shares at their cost and reports the treasury stock as a deduction from capital stock.

10. When a corporation sells treasury stock below its cost, it usually debits the difference between cost and selling price to Paid-in Capital from Treasury Stock.

11. Participating preferred stock requires that if a company fails to pay a dividend in any year, it must make it up in a later year before paying any common dividends.

12. Callable preferred stock permits the corporation at its option to redeem the outstanding preferred shares at stipulated prices.

13. The laws of some states require that corporations restrict their legal capital from distribution to stockholders.

14. The SEC requires companies to disclose their dividend policy in their annual report.

15. All dividends, except for liquidating dividends, reduce the total stockholders’ equity of a corporation.

16. Dividends payable in assets of the corporation other than cash are called property dividends or dividends in kind.

17. When a stock dividend is less than 20-25 percent of the common stock outstanding, a company is required to transfer the fair value of the stock issued from retained earnings.

18. Stock splits and large stock dividends have the same effect on a company’s retained earnings and total stockholders’ equity.

19. The rate of return on common stock equity is computed by dividing net income by the average common stockholders’ equity.

20. The payout ratio is determined by dividing cash dividends paid to common stockholders by net income available to common stockholders.

21. The residual interest in a corporation belongs to the.

22. The pre-emptive right of a common stockholder is the right to.

share proportionately in corporate assets upon liquidation. share proportionately in any new issues of stock of the same class. receive cash dividends before they are distributed to preferred stockholders. exclude preferred stockholders from voting rights.

23. The pre-emptive right enables a stockholder to.

share proportionately in any new issues of stock of the same class. receive cash dividends before other classes of stock without the pre-emptive right. sell capital stock back to the corporation at the option of the stockholder. receive the same amount of dividends on a percentage basis as the preferred stockholders.

S 24. In a corporate form of business organization, legal capital is best defined as.

the amount of capital the state of incorporation allows the company to accumulate over its existence. the par value of all capital stock issued. the amount of capital the federal government allows a corporation to generate. the total capital raised by a corporation within the limits set by the Securities and Exchange Commission.

S 25. Stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders.

are entitled to a dividend every year in which the business earns a profit. have the rights to specific assets of the business. bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership. can negotiate individual contracts on behalf of the enterprise.

26. Total stockholders’ equity represents.

a claim to specific assets contributed by the owners. the maximum amount that can be borrowed by the enterprise. a claim against a portion of the total assets of an enterprise. only the amount of earnings that have been retained in the business.

27. A primary source of stockholders’ equity is.

income retained by the corporation. appropriated retained earnings. contributions by stockholders. both income retained by the corporation and contributions by stockholders.

28. Stockholders’ equity is generally classified into two major categories:

contributed capital and appropriated capital. appropriated capital and retained earnings. retained earnings and unappropriated capital. earned capital and contributed capital.

29. The accounting problem in a lump sum issuance is the allocation of proceeds between the classes of securities. An acceptable method of allocation is the.

pro forma method. método proporcional. método incremental. either the proportional method or the incremental method.

30. When a corporation issues its capital stock in payment for services, the least appropriate basis for recording the transaction is the.

market value of the services received. par value of the shares issued. market value of the shares issued. Any of these provides an appropriate basis for recording the transaction.

31. Direct costs incurred to sell stock such as underwriting costs should be accounted for as.

a reduction of additional paid-in capital. an expense of the period in which the stock is issued. an intangible asset. 1 2 3 1 or 3.

32. A “secret reserve” will be created if.

inadequate depreciation is charged to income. a capital expenditure is charged to expense. liabilities are understated. stockholders’ equity is overstated.

P 33. Which of the following represents the total number of shares that a corporation may issue under the terms of its charter?

authorized shares issued shares unissued shares outstanding shares.

S 34. Stock that has a fixed per-share amount printed on each stock certificate is called.

stated value stock. fixed value stock. uniform value stock. par value stock.

S 35. Which of the following is not a legal restriction related to profit distributions by a corporation?

The amount distributed to owners must be in compliance with the state laws governing corporations. The amount distributed in any one year can never exceed the net income reported for that year. Profit distributions must be formally approved by the board of directors. Dividends must be in full agreement with the capital stock contracts as to preferences and participation.

S 36. In January 2012, Finley Corporation, a newly formed company, issued 10,000 shares of its $10 par common stock for $15 per share. On July 1, 2012, Finley Corporation reacquired 1,000 shares of its outstanding stock for $12 per share. The acquisition of these treasury shares.

decreased total stockholders’ equity. increased total stockholders’ equity. did not change total stockholders’ equity. decreased the number of issued shares.

P 37. Treasury shares are.

shares held as an investment by the treasurer of the corporation. shares held as an investment of the corporation. issued and outstanding shares. issued but not outstanding shares.

38. When treasury stock is purchased for more than the par value of the stock and the cost method is used to account for treasury stock, what account(s) should be debited?

Treasury stock for the par value and paid-in capital in excess of par for the excess of the purchase price over the par value. Paid-in capital in excess of par for the purchase price. Treasury stock for the purchase price. Treasury stock for the par value and retained earnings for the excess of the purchase price over the par value.

39. “Gains” on sales of treasury stock (using the cost method) should be credited to.

paid-in capital from treasury stock. capital stock. lucros acumulados. other income.

40. Porter Corp. purchased its own par value stock on January 1, 2012 for $20,000 and debited the treasury stock account for the purchase price. The stock was subsequently sold for $12,000. The $8,000 difference between the cost and sales price should be recorded as a deduction from.

additional paid-in capital to the extent that previous net “gains” from sales of the same class of stock are included therein; otherwise, from retained earnings. additional paid-in capital without regard as to whether or not there have been previous net “gains” from sales of the same class of stock included therein. lucros acumulados. Resultado líquido.

41. How should a “gain” from the sale of treasury stock be reflected when using the cost method of recording treasury stock transactions?

As ordinary earnings shown on the income statement. As paid-in capital from treasury stock transactions. As an increase in the amount shown for common stock. As an extraordinary item shown on the income statement.

42. Which of the following best describes a possible result of treasury stock transactions by a corporation?

May increase but not decrease retained earnings. May increase net income if the cost method is used. May decrease but not increase retained earnings. May decrease but not increase net income.

43. Which of the following features of preferred stock makes the security more like debt than an equity instrument?

44. The cumulative feature of preferred stock.

limits the amount of cumulative dividends to the par value of the preferred stock. requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders. means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock. enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends.

P 45. According to the FASB, redeemable preferred stock should be.

included with common stock. included as a liability. excluded from the stockholders’ equity heading. included as a contra item in stockholders’ equity.

S 46. Cumulative preferred dividends in arrears should be shown in a corporation’s balance sheet as.

an increase in current liabilities. an increase in stockholders’ equity. a footnote. an increase in current liabilities for the current portion and long-term liabilities for the long-term portion.

47. At the date of the financial statements, common stock shares issued would exceed common stock shares outstanding as a result of the.

declaration of a stock split. declaration of a stock dividend. purchase of treasury stock. payment in full of subscribed stock.

48. An entry is not made on the.

date of declaration. date of record. date of payment. An entry is made on all of these dates.

49. Cash dividends are paid on the basis of the number of shares.

autorizado. issued. outstanding. outstanding less the number of treasury shares.

50. Which of the following statements about property dividends is not true?

A property dividend is usually in the form of securities of other companies. A property dividend is also called a dividend in kind. The accounting for a property dividend should be based on the carrying value (book value) of the nonmonetary assets transferred. All of these statements are true.

51. Houser Corporation owns 4,000,000 shares of stock in Baha Corporation. On December 31, 2012, Houser distributed these shares of stock as a dividend to its stockholders. This is an example of a.

property dividend. stock dividend. liquidating dividend. cash dividend.

52. A dividend which is a return to stockholders of a portion of their original investments is a.

liquidating dividend. property dividend. liability dividend. participating dividend.

53. A mining company declared a liquidating dividend. The journal entry to record the declaration must include a debit to.

Retained Earnings. a paid-in capital account. Accumulated Depletion. Accumulated Depreciation.

54. If management wishes to “capitalize” part of the earnings, it may issue a.

cash dividend. stock dividend. property dividend. liquidating dividend.

55. Which dividends do not reduce stockholders’ equity?

Cash dividends Stock dividends Property dividends Liquidating dividends.

56. The declaration and issuance of a stock dividend larger than 25% of the shares previously outstanding.

increases common stock outstanding and increases total stockholders’ equity. decreases retained earnings but does not change total stockholders’ equity. may increase or decrease paid-in capital in excess of par but does not change total stockholders’ equity. increases retained earnings and increases total stockholders’ equity.

57. Quirk Corporation issued a 100% stock dividend of its common stock which had a par value of $10 before and after the dividend. At what amount should retained earnings be capitalized for the additional shares issued?

There should be no capitalization of retained earnings. Par value Fair value on the declaration date Fair value on the payment date.

58. The issuer of a 5% common stock dividend to common stockholders preferably should transfer from retained earnings to contributed capital an amount equal to the.

fair value of the shares issued. book value of the shares issued. minimum legal requirements. par or stated value of the shares issued.

59. At the date of declaration of a small common stock dividend, the entry should not include.

a credit to Common Stock Dividend Payable. a credit to Paid-in Capital in Excess of Par. a debit to Retained Earnings. All of these are acceptable.

60. The balance in Common Stock Dividend Distributable should be reported as a(n)

deduction from common stock issued. addition to capital stock. current liability. contra current asset.

61. A feature common to both stock splits and stock dividends is.

a transfer to earned capital of a corporation. that there is no effect on total stockholders’ equity. an increase in total liabilities of a corporation. a reduction in the contributed capital of a corporation.

62. What effect does the issuance of a 2-for-1 stock split have on each of the following?

Par Value per Share Retained Earnings.

uma. No effect No effect.

b. Increase No effect.

c. Decrease No effect.

d. Decrease Decrease.

63. Which one of the following disclosures should be made in the equity section of the balance sheet, rather than in the notes to the financial statements?

Dividend preferences Liquidation preferences Call prices Conversion or exercise prices.

64. The rate of return on common stock equity is calculated by dividing.

net income less preferred dividends by average common stockholders’ equity. net income by average common stockholders’ equity. net income less preferred dividends by ending common stockholders’ equity. net income by ending common stockholders’ equity.

65. The payout ratio can be calculated by dividing.

dividends per share by earnings per share. cash dividends by net income less preferred dividends. cash dividends by market price per share. dividends per share by earnings per share and dividing cash dividends by net income less preferred dividends.

66. Younger Company has outstanding both common stock and nonparticipating, non-cumulative preferred stock. The liquidation value of the preferred is equal to its par value. The book value per share of the common stock is unaffected by.

the declaration of a stock dividend on preferred payable in preferred stock when the market price of the preferred is equal to its par value. the declaration of a stock dividend on common stock payable in common stock when the market price of the common is equal to its par value. the payment of a previously declared cash dividend on the common stock. a 2-for-1 split of the common stock.

P 67. Assume common stock is the only class of stock outstanding in the Manley Corporation. Total stockholders’ equity divided by the number of common stock shares outstanding is called.

book value per share. par value per share. stated value per share. fair value per share.

*68. Dividends are not paid on.

noncumulative preferred stock. nonparticipating preferred stock. treasury common stock. Dividends are paid on all of these.

*69. Noncumulative preferred dividends in arrears.

are not paid or disclosed. must be paid before any other cash dividends can be distributed. are disclosed as a liability until paid. are paid to preferred stockholders if sufficient funds remain after payment of the current preferred dividend.

*70. How should cumulative preferred dividends in arrears be shown in a corporation’s statement of financial position?

Note disclosure Increase in stockholders’ equity Increase in current liabilities Increase in current liabilities for the amount expected to be declared within the year or operating cycle, and increase in long-term liabilities for the balance.

Multiple Choice Answers—Conceptual.

Use the following information for questions 71 and 72.

Presented below is information related to Hale Corporation:

Common Stock, $1 par $4,800,000.

Paid-in Capital in Excess of Par—Common Stock 550,000.

Preferred 8 1/2% Stock, $50 par 2,000,000.

Paid-in Capital in Excess of Par—Preferred Stock 400,000.

Retained Earnings 1,500,000.

Treasury Common Stock (at cost) 150,000.

71. The total stockholders’ equity of Hale Corporation is.

72. The total paid-in capital (cash collected) related to the common stock is.

73. Manning Company issued 10,000 shares of its $5 par value common stock having a fair value of $25 per share and 15,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $520,000. How much of the proceeds would be allocated to the common stock?

74. Norton Company issues 4,000 shares of its $5 par value common stock having a fair value of $25 per share and 6,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $204,000. What amount of the proceeds should be allocated to the preferred stock?

75. Berry Corporation has 50,000 shares of $10 par common stock authorized. The following transactions took place during 2012, the first year of the corporation’s existence:

Sold 10,000 shares of common stock for $18 per share.

Issued 10,000 shares of common stock in exchange for a patent valued at $200,000.

At the end of the Berry’s first year, total paid-in capital amounted to.

76. Glavine Company issues 6,000 shares of its $5 par value common stock having a fair value of $25 per share and 9,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $312,000. The proceeds allocated to the common stock is.

77. Wheeler Company issued 5,000 shares of its $5 par value common stock having a fair value of $25 per share and 7,500 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $260,000. The proceeds allocated to the preferred stock is.

78. Pember Corporation started business in 2007 by issuing 200,000 shares of $20 par common stock for $36 each. In 2012, 30,000 of these shares were purchased for $52 per share by Pember Corporation and held as treasury stock. On June 15, 2013, these 30,000 shares were exchanged for a piece of property that had an assessed value of $810,000. Perber’s stock is actively traded and had a market price of $60 on June 15, 2013. The cost method is used to account for treasury stock. The amount of paid-in capital from treasury stock transactions resulting from the above events would be.

79. On September 1, 2012, Valdez Company reacquired 16,000 shares of its $10 par value common stock for $15 per share. Valdez uses the cost method to account for treasury stock. The journal entry to record the reacquisition of the stock should debit.

Treasury Stock for $160,000. Common Stock for $160,000. Common Stock for $160,000 and Paid-in Capital in Excess of Par for $60,000. Treasury Stock for $240,000.

80. Gannon Company acquired 8,000 shares of its own common stock at $20 per share on February 5, 2012, and sold 4,000 of these shares at $27 per share on August 9, 2013. The fair value of Gannon’s common stock was $24 per share at December 31, 2012, and $25 per share at December 31, 2013. The cost method is used to record treasury stock transactions. What account(s) should Gannon credit in 2013 to record the sale of 4,000 shares?

Treasury Stock for $108,000. Treasury Stock for $80,000 and Paid-in Capital from Treasury Stock for $28,000. Treasury Stock for $80,000 and Retained Earnings for $28,000. Treasury Stock for $96,000 and Retained Earnings for $12,000.

81. Long Co. issued 100,000 shares of $10 par common stock for $1,200,000. Long acquired 10,000 shares of its own common stock at $15 per share. Three months later Long sold 5,000 of these shares at $19 per share. If the cost method is used to record treasury stock transactions, to record the sale of the 5,000 treasury shares, Long should credit.

Treasury Stock for $95,000. Treasury Stock for $50,000 and Paid-in Capital from Treasury Stock for $45,000. Treasury Stock for $75,000 and Paid-in Capital from Treasury Stock for $20,000. Treasury Stock for $75,000 and Paid-in Capital in Excess of Par for $20,000.

82. An analysis of stockholders’ equity of Hahn Corporation as of January 1, 2012, is as follows:

Common stock, par value $20; authorized 100,000 shares;

issued and outstanding 90,000 shares $1,800,000.

Paid-in capital in excess of par 700,000.

Retained earnings 760,000.

Hahn uses the cost method of accounting for treasury stock and during 2012 entered into the following transactions:

Acquired 2,500 shares of its stock for $75,000.

Sold 2,000 treasury shares at $35 per share.

Sold the remaining treasury shares at $20 per share.

Assuming no other equity transactions occurred during 2012, what should Hahn report at December 31, 2012, as total additional paid-in capital?

83. Percy Corporation was organized on January 1, 2012, with an authorization of 1,200,000 shares of common stock with a par value of $6 per share. During 2012, the corporation had the following capital transactions:

January 5 issued 900,000 shares @ $10 per share.

July 28 purchased 120,000 shares @ $11 per share.

December 31 sold the 120,000 shares held in treasury @ $18 per share.

Percy used the cost method to record the purchase and reissuance of the treasury shares. What is the total amount of additional paid-in capital as of December 31, 2012?

84. Sosa Co.’s stockholders’ equity at January 1, 2012 is as follows:

Common stock, $10 par value; authorized 300,000 shares;

Outstanding 225,000 shares $2,250,000.

Paid-in capital in excess of par 700,000.

Retained earnings 2,190,000.

During 2012, Sosa had the following stock transactions:

Acquired 6,000 shares of its stock for $270,000.

Sold 3,600 treasury shares at $50 a share.

Sold the remaining treasury shares at $41 per share.

No other stock transactions occurred during 2012. Assuming Sosa uses the cost method to record treasury stock transactions, the total amount of all additional paid-in capital accounts at December 31, 2012 is.

85. Presented below is the stockholders’ equity section of Oaks Corporation at December 31, 2012:

Common stock, par value $20; authorized 75,000 shares;

issued and outstanding 45,000 shares $ 900,000.

Paid-in capital in excess of par value 250,000.

Retained earnings 300,000.

During 2013, the following transactions occurred relating to stockholders’ equity:

3,000 shares were reacquired at $28 per share.

3,000 shares were reacquired at $35 per share.

1,800 shares of treasury stock were sold at $30 per share.

For the year ended December 31, 2013, Oaks reported net income of $450,000. Assuming Oaks accounts for treasury stock under the cost method, what should it report as total stockholders’ equity on its December 31, 2013, balance sheet?

86. On December 1, 2012, Abel Corporation exchanged 30,000 shares of its $10 par value common stock held in treasury for a used machine. The treasury shares were acquired by Abel at a cost of $40 per share, and are accounted for under the cost method. On the date of the exchange, the common stock had a fair value of $55 per share (the shares were originally issued at $30 per share). As a result of this exchange, Abel’s total stockholders’ equity will increase by.

87. Luther Inc., has 3,000 shares of 6%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2013, and December 31, 2012. The board of directors declared and paid a $7,500 dividend in 2012. In 2013, $36,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2013?

88. Anders, Inc., has 10,000 shares of 5%, $100 par value, cumulative preferred stock and 40,000 shares of $1 par value common stock outstanding at December 31, 2013. There were no dividends declared in 2011. The board of directors declares and pays a $90,000 dividend in 2012 and in 2013. What is the amount of dividends received by the common stockholders in 2013?

89. Colson Inc. declared a $240,000 cash dividend. It currently has 9,000 shares of 7%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Colson distribute to the common stockholders?

90. Pierson Corporation owned 10,000 shares of Hunter Corporation. These shares were purchased in 2009 for $90,000. On November 15, 2013, Pierson declared a property dividend of one share of Hunter for every ten shares of Pierson held by a stockholder. On that date, when the market price of Hunter was $21 per share, there were 90,000 shares of Pierson outstanding. What gain and net reduction in retained earnings would result from this property dividend?

Gain Net Reduction in.

91. Stinson Corporation owned 30,000 shares of Matile Corporation. These shares were purchased in 2009 for $270,000. On November 15, 2013, Stinson declared a property dividend of one share of Matile for every ten shares of Stinson held by a stockholder. On that date, when the market price of Matile was $21 per share, there were 270,000 shares of Stinson outstanding. What gain and net reduction in retained earnings would result from this property dividend?

Gain Net Reduction in.

92. Winger Corporation owned 300,000 shares of Fegan Corporation stock. On December 31, 2012, when Winger’s account “Equity Investment (Fegan Corporation”) had a carrying value of $5 per share, Winger distributed these shares to its stockholders as a dividend. Winger originally paid $8 for each share. Fegan has 1,000,000 shares issued and outstanding, which are traded on a national stock exchange. The quoted market price for a Fegan share was $7 on the declaration date and $9 on the distribution date.

What would be the reduction in Winger’s stockholders’ equity as a result of the above transactions?

93. Gibbs Corporation owned 20,000 shares of Oliver Corporation’s $5 par value common stock. These shares were purchased in 2009 for $180,000. On September 15, 2013, Gibbs declared a property dividend of one share of Oliver for every ten shares of Gibbs held by a stockholder. On that date, when the market price of Oliver was $21 per share, there were 180,000 shares of Gibbs outstanding. What NET reduction in retained earnings would result from this property dividend?

94. Melvern’s Corporation has an investment in 10,000 shares of Wallace Company common stock with a cost of $436,000. These shares are used in a property dividend to stockholders of Melvern’s. The property dividend is declared on May 25 and scheduled to be distributed on July 31 to stockholders of record on June 15. The fair value per share of Wallace stock is $63 on May 25, $66 on June 15, and $68 on July 31. The net effect of this property dividend on retained earnings is a reduction of.

95. Hernandez Company has 490,000 shares of $10 par value common stock outstanding. During the year, Hernandez declared a 10% stock dividend when the market price of the stock was $30 per share. Four months later Hernandez declared a $.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by.

96. On June 30, 2012, when Ermler Co.’s stock was selling at $65 per share, its capital accounts were as follows:

Capital stock (par value $50; 80,000 shares issued) $4,000,000.

Premium on capital stock 600,000.

Retained earnings 4,200,000.

If a 100% stock dividend were declared and distributed, capital stock would be.

97. The stockholders’ equity section of Gunkel Corporation as of December 31, 2012, was as follows:

Common stock, par value $2; authorized 20,000 shares;

issued and outstanding 10,000 shares $ 20,000.

Paid-in capital in excess of par 30,000.

Retained earnings 95,000.

On March 1, 2013, the board of directors declared a 15% stock dividend, and accordingly 1,500 additional shares were issued. On March 1, 2011, the fair value of the stock was $6 per share. For the two months ended February 28, 2013, Gunkel sustained a net loss of $10,000.

What amount should Gunkel report as retained earnings as of March 1, 2013?

98. The stockholders’ equity of Howell Company at July 31, 2012 is presented below:

Common stock, par value $20, authorized 400,000 shares;

issued and outstanding 160,000 shares $3,200,000.

Paid-in capital in excess of par 160,000.

Retained earnings 650,000.

On August 1, 2012, the board of directors of Howell declared a 10% stock dividend on common stock, to be distributed on September 15th. The market price of Howell’s common stock was $35 on August 1, 2012, and $38 on September 15, 2012. What is the amount of the debit to retained earnings as a result of the declaration and distribution of this stock dividend?

99. On January 1, 2012, Dodd, Inc., declared a 15% stock dividend on its common stock when the fair value of the common stock was $20 per share. Stockholders’ equity before the stock dividend was declared consisted of:

Common stock, $10 par value, authorized 200,000 shares;

issued and outstanding 120,000 shares $1,200,000.

Additional paid-in capital on common stock 150,000.

Retained earnings 700,000.

Total stockholders’ equity $2,050,000.

What was the effect on Dodd’s retained earnings as a result of the above transaction?

On January 1, 2012, Culver Corporation had 110,000 shares of its $5 par value common stock outstanding. On June 1, the corporation acquired 10,000 shares of stock to be held in the treasury. On December 1, when the market price of the stock was $8, the corporation declared a 15% stock dividend to be issued to stockholders of record on December 16, 2012. What was the impact of the 15% stock dividend on the balance of the retained earnings account? $750,000 decrease $120,000 decrease $132,000 decrease No effect.

At the beginning of 2013, Flaherty Company had retained earnings of $250,000. During the year Flaherty reported net income of $100,000, sold treasury stock at a “gain” of $36,000, declared a cash dividend of $60,000, and declared and issued a small stock dividend of 3,000 shares ($10 par value) when the fair value of the stock was $20 per share. The amount of retained earnings available for dividends at the end of 2013 was $230,000. $260,000. $266,000. $296,000.

Masterson Company has 420,000 shares of $10 par value common stock outstanding. During the year Masterson declared a 10% stock dividend when the market price of the stock was $36 per share. Three months later Masterson declared a $.60 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by $1,789,200 $1,512,000 $277,200 $264,000.

Questions 103 and 104 are based on the following information.

Layne Corporation had the following information in its financial statements for the years ended 2012 and 2013:

Cash dividends for the year 2013 $ 8,000.

Net income for the year ended 2013 83,000.

Market price of stock, 12/31/12 10.

Market price of stock, 12/31/13 12.

Common stockholders’ equity, 12/31/12 1,600,000.

Common stockholders’ equity, 12/31/13 1,800,000.

Outstanding shares, 12/31/13 180,000.

Preferred dividends for the year ended 201315,000.

What is the payout ratio for Layne Corporation for the year ended 2013? 27.7% 18.1% 11.8% 9.6%

What is the book value per share for Layne Corporation for the year ended 2013? $10.00 $9.92 $9.44 $8.89.

At the beginning of 2013, Hamilton Company had retained earnings of $180,000. During the year Hamilton reported net income of $75,000, sold treasury stock at a “gain” of $27,000, declared a cash dividend of $45,000, and declared and issued a small stock dividend of 1,500 shares ($10 par value) when the fair value of the stock was $30 per share. The amount of retained earnings available for dividends at the end of 2013 was: $214,500. $192,000. $187,500. $165,000.

Mingenback Company has 560,000 shares of $10 par value common stock outstanding. During the year Mingenback declared a 10% stock dividend when the market price of the stock was $48 per share. Two months later Mingenback declared a $.60 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by: $352,000. $369,600. $2,688,000. $3,057,600.

Questions 107 and 108 are based on the following information.

Sealy Corporation had the following information in its financial statements for the years ended 2012 and 2013:

Cash dividends for the year 2013 $ 5,000.

Net income for the year ended 2013 78,000.

Market price of stock, 12/31/12 10.

Market price of stock, 12/31/13 12.

Common stockholders’ equity, 12/31/12 1,000,000.

Common stockholders’ equity, 12/31/13 1,200,000.

Outstanding shares, 12/31/13 100,000.

Preferred dividends for the year ended 201310,000.

What is the rate of return on common stock equity for Sealy Corporation for the year ended 2013? 7.1% 6.5% 6.2% 5.7%

What is the price-earnings ratio for Sealy Corporation for the year ended 2013? 14.7 15.4 17.6 19.0.

Mays, Inc. had net income for 2012 of $3,180,000 and earnings per share on common stock of $5. Included in the net income was $450,000 of bond interest expense related to its long-term debt. The income tax rate for 2012 was 30%. Dividends on preferred stock were $600,000. The payout ratio on common stock was 25%. What were the dividends on common stock in 2012? $645,000. $795,000. $723,750. $967,500.

Presented below is information related to Orender, Inc.:

Common stock $ 75,000 $ 60,000.

4% Preferred stock 350,000 350,000.

Retained earnings (includes net income for current year) 90,000 75,000.

Net income for year 40,000 32,000.

What is Orender’s rate of return on common stock equity for 2013?

Use the following information for questions 111 and 112.

The following data are provided:

10% Cumulative preferred stock, $50 par $100,000 $100,000.

Common stock, $10 par 160,000 90,000.

Additional paid-in capital 80,000 65,000.

Retained earnings (includes current year net income) 240,000 215,000.

Net income 70,000.

On May 1, 2013, 7,000 shares of common stock were issued. The preferred dividends were not declared during 2013. The market price of the common stock was $50 at December 31, 2013.

The rate of return on common stock equity for 2013 is 70 ÷ 420. 70 ÷ 480. 60 ÷ 420. 60 ÷ 480.

The book value per share of common stock at 12/31/13 is 470 ÷ 16. 240 ÷ 16. 370 ÷ 16. 480 ÷ 15.

Use the following information for questions 113 and 114.

Turner Corporation had the following information in its financial statements for the year ended 2012 and 2013:

Cash dividends for the year 2013 $ 15,000.

Net income for the year ended 2013 155,000.

Market price of stock, 12/31/13 24.

Common stockholders’ equity, 12/31/12 2,200,000.

Common stockholders’ equity, 12/31/13 2,400,000.

Outstanding shares, 12/31/13 160,000.

Preferred dividends for the year ended 2013 30,000.

What is the payout ratio for Turner Corporation for the year ended 2013? 9.7% 12.0% 19.4% 29.0%

What is the book value per share for Turner Corporation for the year ended 2013? $14.81 $15.00 $13.75 $14.38.

Use the following information for questions 115 through 117.

Written, Inc. has outstanding 500,000 shares of $2 par common stock and 100,000 shares of no-par 8% preferred stock with a stated value of $5. The preferred stock is cumulative and nonparticipating. Dividends have been paid in every year except the past two years and the current year.

*115. Assuming that $250,000 will be distributed as a dividend in the current year, how much will the common stockholders receive?

*116. Assuming that $105,000 will be distributed as a dividend in the current year, how much will the preferred stockholders receive?

*117. Assuming that $305,000 will be distributed, and the preferred stock is also participating, how much will the common stockholders receive?

*118. Yoder, Inc. has 100,000 shares of $10 par value common stock and 50,000 shares of $10 par value, 6%, cumulative, participating preferred stock outstanding. Dividends on the preferred stock are one year in arrears. Assuming that Yoder wishes to distribute $270,000 as dividends, the common stockholders will receive.

*119. Mann Co. has outstanding 60,000 shares of 8% preferred stock with a $10 par value and 150,000 shares of $3 par value common stock. Dividends have been paid every year except last year and the current year. If the preferred stock is cumulative and nonparticipating and $300,000 is distributed, the common stockholders will receive.

Multiple Choice Answers—Computational.

A corporation was organized in January 2009 with authorized capital of $10 par value common stock. On February 1, 2012, shares were issued at par for cash. On March 1, 2012, the corporation’s attorney accepted 7,000 shares of common stock in settlement for legal services with a fair value of $90,000. Additional paid-in capital would increase on.

February 1, 2012 March 1, 2012.

On July 1, 2012, Nall Co. issued 2,500 shares of its $10 par common stock and 5,000 shares of its $10 par convertible preferred stock for a lump sum of $140,000. At this date Nall’s common stock was selling for $24 per share and the convertible preferred stock for $18 per share. The amount of the proceeds allocated to Nall’s preferred stock should be $70,000. $84,000. $90,000. $77,000.

Horton Co. was organized on January 2, 2012, with 500,000 authorized shares of $10 par value common stock. During 2012, Horton had the following capital transactions:

January 5—issued 375,000 shares at $14 per share.

July 27—purchased 25,000 shares at $11 per share.

November 25—sold 20,000 shares of treasury stock at $13 per share.

Horton used the cost method to record the purchase of the treasury shares. What would be the balance in the Paid-in Capital from Treasury Stock account at December 31, 2012?

In 2012, Hobbs Corp. acquired 9,000 shares of its own $1 par value common stock at $18 per share. In 2013, Hobbs issued 6,000 of these shares at $25 per share. Hobbs uses the cost method to account for its treasury stock transactions. What accounts and what amounts should Hobbs credit in 2013 to record the issuance of the 6,000 shares?

Treasury Additional Retained Common.

Stock Paid-in Capital Earnings Stock.

At its date of incorporation, Sauder, Inc. issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Sauder acquired 20,000 shares of its common stock at a price of $16 per share and accounted for them by the cost method. Subsequently, these shares were reissued at a price of $12 per share. There have been no other issuances or acquisitions of its own common stock. What effect does the reissuance of the stock have on the following accounts?

Retained Earnings Additional Paid-in Capital.

Decrease Decrease No effect Decrease Decrease No effect No effect No effect.

Farmer Corp. owned 20,000 shares of Eaton Corp. purchased in 2009 for $300,000. On December 15, 2012, Farmer declared a property dividend of all of its Eaton Corp. shares on the basis of one share of Eaton for every 10 shares of Farmer common stock held by its stockholders. The property dividend was distributed on January 15, 2013. On the declaration date, the aggregate market price of the Eaton shares held by Farmer was $500,000. The entry to record the declaration of the dividend would include a debit to Retained Earnings of $0. $200,000. $300,000. US $ 500.000.

A corporation declared a dividend, a portion of which was liquidating. How would this distribution affect each of the following?

Paid-in Capital Retained Earnings.

Decrease No effect Decrease Decrease No effect Decrease No effect No effect.

On May 1, 2012, Ziek Corp. declared and issued a 10% common stock dividend. Prior to this dividend, Ziek had 100,000 shares of $1 par value common stock issued and outstanding. The fair value of Ziek ‘s common stock was $20 per share on May 1, 2012. As a result of this stock dividend, Ziek’s total stockholders’ equity increased by $200,000. decreased by $200,000. decreased by $10,000. did not change.

How would the declaration and subsequent issuance of a 10% stock dividend by the issuer affect each of the following when the fair value of the shares exceeds the par value of the stock?

Common Stock Paid-in Capital.

No effect No effect No effect Increase Increase No effect Increase Increase.

On December 31, 2012, the stockholders’ equity section of Arndt, Inc., was as follows:

Common stock, par value $10; authorized 30,000 shares;

issued and outstanding 9,000 shares $ 90,000.

Additional paid-in capital 116,000.

Retained earnings 154,000.

Total stockholders’ equity $360,000.

On March 31, 2013, Arndt declared a 10% stock dividend, and accordingly 900 additional shares were issued, when the fair value of the stock was $18 per share. For the three months ended March 31, 2013, Arndt sustained a net loss of $32,000. The balance of Arndt’s retained earnings as of March 31, 2013, should be.

*130. At December 31, 2012 and 2013, Plank Corp. had outstanding 3,000 shares of $100 par value 8% cumulative preferred stock and 15,000 shares of $10 par value common stock. At December 31, 2012, dividends in arrears on the preferred stock were $12,000. Cash dividends declared in 2013 totaled $45,000. What amounts were payable on each class of stock?

Preferred Stock Common Stock.

Multiple Choice Answers—CPA Adapted.

In the United States, like many other countries, banks are major creditors as well as the largest investors.

The IFRS statement of recognized income and expenses is identical to the U. S. GAAP statement of retained earnings – beginning balance retained earnings, plus net income, less dividends, equals ending balance retained earnings.

When the statement of recognized income and expenses is utilized the requirement for additional note disclosure is reduced.

Under IFRS compliance requirements the U. S. GAAP formatted income statement need not be replaced with the iGAAP statement of recognized income and expenses.

Under IFRS compliance requirements the revaluation surplus is not considered contributed capital.

The accounting for treasury stock retirements under IFRS is to charge the entire amount to paid-in capital. may have the excess charged to paid-in capital, depending on the original transaction related to the issuance of the stock. is to charge the excess of the cost of treasury stock over par value to retained earnings. is to allocate the difference between paid-in capital and retained earnings.

The Revaluation Surplus of IFRS is similar to U. S. GAAP in that it allows both increases and decreases in valuation. similar to U. S. GAAP in that it only allows for the decrease in valuation. similar to U. S. GAAP in that it only allows for the increase in valuation. different than U. S. GAAP in that it allows the increase in valuation.

The IFRS statement of recognized income and expenses does not recognize charges to equity such as revaluation surplus values. is a required report under IFRS reporting requirements. reports the items that were charged directly to equity such as revaluation surplus. is similar to the U. S. GAAP income statement in that it only reports revenues and expenses of the period.

Under IFRS compliance requirements the Revaluation Surplus is only utilized to record the changes in depreciable items – plant and equipment. considered as revenue when utilizing the U. S. GAAP formatted income statement. utilized to record the changes in property, plant, and equipment. reported as contributed capital.

The current project of the IASB and the FASB related to financial statement presentation indicates that the IFRS statement of recognized income and expenses will most likely be adopted by the FASB as a U. S. requirement in the near future. that the IFRS statement of recognized income and expenses will probably be eliminated. that the U. S. GAAP standard for reporting comprehensive income will most likely be adopted by the IASB for IFRS. that hybrid financial instruments are unacceptable.

Answers to Multiple Choice:

Briefly describe some of the similarities and differences between U. S. GAAP and IFRS with respect to the accounting for stockholders’ equity.

Briefly discuss the implications of the financial statement presentation project for the reporting of stockholders’ equity.

DILUTIVE SECURITIES AND EARNINGS PER SHARE.

IFRS questions are available at the end of this chapter.

1. The recording of convertible bonds at the date of issue is the same as the recording of straight debt issues.

2. Companies recognize the gain or loss on retiring convertible debt as an extraordinary item.

3. The FASB states that when an issuer makes an additional payment to encourage conversion, the payment should be reported as an expense.

4. The market value method is used to account for the exercise of convertible preferred stock.

5. Companies recognize a gain or loss when stockholders exercise convertible preferred stock.

6. A company should allocate the proceeds from the sale of debt with detachable stock warrants between the two securities based on their market values.

7. Nondetachable warrants, as with detachable warrants, require an allocation of the proceeds between the bonds and the warrants.

8. The intrinsic value of a stock option is the difference between the market price of the stock and the exercise price of the options at the grant date.

9. Under the fairvalue method, companies compute total compensation expense based on the fair value of options on the date of exercise.

10. The service period in stock option plans is the time between the grant date and the vesting date.

11. If an employee fails to exercise a stock option before its expiration date, the company should decrease compensation expense.

12. If an employee forfeits a stock option because of failure to satisfy a service requirement, the company should record paid-in capital from expired options.

13. If preferred stock is cumulative and no dividends are declared, the company subtracts the current year preferred dividend in computing earnings per share.

14. When stock dividends or stock splits occur, companies must restate the shares outstand-ing after the stock dividend or split, in order to compute the weighted-average number of shares.

15. If a stock dividend occurs after year-end, but before issuing the financial statements, a company must restate the weighted-average number of shares outstanding for the year.

16. Preferred dividends are subtracted from net income but not income before extraordinary items in computing earnings per share.

17. When a company has a complex capital structure, it must report both basic and diluted earnings per share.

18. In computing diluted earnings per share, stock options are considered dilutive when their option price is greater than the market price.

19. In a contingent issue agreement, the contingent shares are considered outstanding for computing diluted EPS when the earnings or market price level is met by the end of the year.

20. A company should report per share amounts for income before extraordinary items, but not for income from continuing operations.

MULTIPLE CHOICE — Dilutive Securities, Conceptual.

21. Convertible bonds.

têm prioridade sobre outros endividamentos. geralmente são garantidos por uma primeira ou segunda hipoteca. pagar juros apenas no caso de os ganhos serem suficientes para cobrir os juros. podem ser trocados por valores mobiliários.

22. The conversion of bonds is most commonly recorded by the.

método incremental. método proporcional. método de valor de mercado. método de valor contábil.

23. When a bond issuer offers some form of additional consideration (a “sweetener”) to induce conversion, the sweetener is accounted for as a(n)

S 24. Corporations issue convertible debt for two main reasons. One is the desire to raise equity capital that, assuming conversion, will arise when the original debt is converted. The other is.

the ease with which convertible debt is sold even if the company has a poor credit rating. the fact that equity capital has issue costs that convertible debt does not. that many corporations can obtain financing at lower rates. that convertible bonds will always sell at a premium.

S 25. When convertible debt is retired by the issuer, any material difference between the cash acquisition price and the carrying amount of the debt should be.

refletido atualmente na renda, mas não como um item extraordinário. reflected currently in income as an extraordinary item. tratado como um ajuste de período anterior. treated as an adjustment of additional paid-in capital.

S 26. The conversion of preferred stock into common requires that any excess of the par value of the common shares issued over the carrying amount of the preferred being converted should be.

refletido atualmente na renda, mas não como um item extraordinário. reflected currently in income as an extraordinary item. tratado como um ajuste de período anterior. treated as a direct reduction of retained earnings.

27. The conversion of preferred stock may be recorded by the.

método incremental. método de valor contábil. método de valor de mercado. método de valor nominal.

28. When the cash proceeds from a bond issued with detachable stock warrants exceed the sum of the par value of the bonds and the fair market value of the warrants, the excess should be credited to.

additional paid-in capital from stock warrants. lucros acumulados. uma conta de passivo. prêmio sobre títulos a pagar.

29. Proceeds from an issue of debt securities having stock warrants should not be allocated between debt and equity features when.

o valor de mercado dos warrants não está prontamente disponível. O exercício dos mandatos dentro dos próximos períodos fiscais parece remoto. a alocação resultaria em um desconto na garantia da dívida. os warrants emitidos com títulos de dívida são não-destacáveis.

30. Stock warrants outstanding should be classified as.

passivos. reduções de capital contribuíram em excesso de valor nominal. assets. nenhum desses.

P 31. A corporation issues bonds with detachable warrants. The amount to be recorded as paid-in capital is preferably.

zero. calculado pelo excesso dos rendimentos sobre a quantidade de cara das ligações. igual ao valor de mercado dos warrants. com base nos valores relativos de mercado dos dois valores mobiliários envolvidos.

P 32. The distribution of stock rights to existing common stockholders will increase paid-in capital at the.

Data de Emissão Data do Exercício.

of the Rights of the Rights.

S 33. The major difference between convertible debt and stock warrants is that upon exercise of the warrants.

as ações são mantidas pela empresa por um período de tempo definido antes de serem emitidas para o detentor da garantia. o titular tem que pagar uma certa quantia em dinheiro para obter as ações. o estoque envolvido é restrito e só pode ser vendido pelo destinatário após um determinado período de tempo. nenhum capital pago acima do valor nominal pode ser uma parte da transação.

S 34. Which of the following is not a characteristic of a noncompensatory stock option plan?

Substancialmente todos os funcionários em tempo integral podem participar de forma equitativa. O plano não oferece nenhum recurso de opção substancial. Unlimited time period permitted for exercise of an option as long as the holder isstill employed by the company. Desconto do preço de mercado das ações não superior ao que seria razoável em uma oferta de ações para acionistas ou outros.

35. The date on which to measure the compensation element in a stock option granted to a corporate employee ordinarily is the date on which the employee.

é concedida a opção. executou todas as condições precedentes ao exercício da opção. may first exercise the option. exerce a opção.

36. Compensation expense resulting from a compensatory stock option plan is generally.

reconhecida no período de exercício. reconhecida no período da concessão. allocated to the periods benefited by the employee’s required service. allocated over the periods of the employee’s service life to retirement.

37. The date on which total compensation expense is computed in a stock option plan is the date.

of grant. de exercício. que o preço de mercado coincide com o preço da opção. que o preço de mercado excede o preço da opção.

38. Which of the following is not a characteristic of a noncompensatory stock purchase plan?

Está aberto a quase todos os funcionários em tempo integral. The discount from market price is small. O plano não oferece nenhum recurso de opção substancial. Todas essas são características.

*39. Under the intrinsic value method, compensation expense resulting from an incentive stock option is generally.

não reconhecido porque não existe excesso de preço de mercado sobre o preço da opção na data da concessão. reconhecida no período da concessão. allocated to the periods benefited by the employee’s required service. reconhecida no período de exercício.

*40. For stock appreciation rights, the measurement date for computing compensation is the date.

os direitos amadurecem. the stock’s price reaches a predetermined amount. of grant. de exercício.

*41. An executive pays no taxes at time of exercise in a(an)

plano de direitos de valorização de ações. Plano de opções de ações de incentivo. plano de opções de ações não qualificadas. Os impostos seriam pagos em todos eles.

*42. A company estimates the fair value of SARs, using an option-pricing model, for.

prêmios de ações baseados em ações. prêmios de responsabilidade baseada em ações. prêmios de patrimônio e prêmios de responsabilidade. nem prêmios de equidade ou prêmios de responsabilidade.

Multiple Choice Answers—Dilutive Securities, Conceptual.

Solutions to those Multiple Choice questions for which the answer is “none of these.”

Multiple Choice — Dilutive Securities, Computational.

43. Fogel Co. has $5,000,000 of 8% convertible bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2012, the holders of $1,600,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 and the market price of the common stock was $36. The total unamortized bond premium at the date of conversion was $350,000. Fogel should record, as a result of this conversion, a.

credit of $272,000 to Paid-in Capital in Excess of Par. credit of $240,000 to Paid-in Capital in Excess of Par. credit of $112,000 to Premium on Bonds Payable. loss of $16,000.

44. On July 1, 2012, an interest payment date, $80,000 of Parks Co. bonds were converted into 1,600 shares of Parks Co. common stock each having a par value of $45 and a market value of $54. There is $3,200 unamortized discount on the bonds. Using the book value method, Parks would record.

nenhuma mudança no capital pago em excesso do par. um aumento de US $ 4.800 em capital pago em excesso do valor nominal. a $9,600 increase in paid-in capital in excess of par. a $6,400 increase in paid-in capital in excess of par.

45. Morgan Corporation had two issues of securities outstanding: common stock and an 8% convertible bond issue in the face amount of $20,000,000. Interest payment dates of the bond issue are June 30th and December 31st. The conversion clause in the bond indenture entitles the bondholders to receive forty shares of $20 par value common stock in exchange for each $1,000 bond. On June 30, 2012, the holders of $3,000,000 face value bonds exercised the conversion privilege. The market price of the bonds on that date was $1,100 per bond and the market price of the common stock was $35. The total unamortized bond discount at the date of conversion was $1,250,000. In applying the book value method, what amount should Morgan credit to the account “paid-in capital in excess of par,” as a result of this conversion?

Use the following information for questions 46 through 48.

Chang Corporation issued $6,000,000 of 9%, ten-year convertible bonds on July 1, 2012 at 96.1 plus accrued interest. The bonds were dated April 1, 2010 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2013, $1,200,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion.

46. If “interest payable” were credited when the bonds were issued, what should be the amount of the debit to “interest expense” on October 1, 2012?

47. What should be the amount of the unamortized bond discount on April 1, 2013 relating to the bonds converted?

48. What was the effective interest rate on the bonds when they were issued?

49. Litke Corporation issued at a premium of $5,000 a $100,000 bond issue convertible into 2,000 shares of common stock (par value $25). At the time of the conversion, the unamortized premium is $2,000, the market value of the bonds is $110,000, and the stock is quoted on the market at $60 per share. If the bonds are converted into common, what is the amount of paid-in capital in excess of par to be recorded on the conversion of the bonds?

50. In 2012, Eklund, Inc., issued for $103 per share, 80,000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Eklund’s $25 par value common stock at the option of the preferred stockholder. In August 2013, all of the preferred stock was converted into common stock. The market value of the common stock at the date of the conversion was $30 per share. What total amount should be credited to additional paid-in capital from common stock as a result of the conversion of the preferred stock into common stock?

51. On December 1, 2012, Lester Company issued at 103, four hundred of its 9%, $1,000 bonds. Attached to each bond was one detachable stock warrant entitling the holder to purchase 10 shares of Lester’s common stock. On December 1, 2012, the market value of the bonds, without the stock warrants, was 95, and the market value of each stock purchase warrant was $50. The amount of the proceeds from the issuance that should be accounted for as the initial carrying value of the bonds payable would be.

52. On March 1, 2012, Ruiz Corporation issued $1,000,000 of 8% nonconvertible bonds at 104, which are due on February 28, 2032. In addition, each $1,000 bond was issued with 25 detachable stock warrants, each of which entitled the bondholder to purchase for $50 one share of Ruiz common stock, par value $25. The bonds without the warrants would normally sell at 95. On March 1, 2012, the fair value of Ruiz’s common stock was $40 per share and the fair value of the warrants was $2.00. What amount should Ruiz record on March 1, 2010 as paid-in capital from stock warrants?

53. During 2012, Gordon Company issued at 104 five hundred, $1,000 bonds due in ten years. One detachable stock warrant entitling the holder to purchase 15 shares of Gordon’s common stock was attached to each bond. At the date of issuance, the market value of the bonds, without the stock warrants, was quoted at 96. The market value of each detachable warrant was quoted at $40. What amount, if any, of the proceeds from the issuance should be accounted for as part of Gordon’s stockholders’ equity?

54. On April 7, 2012, Kegin Corporation sold a $3,000,000, twenty-year, 8 percent bond issue for $3,180,000. Each $1,000 bond has two detachable warrants, each of which permits the purchase of one share of the corporation’s common stock for $30. The stock has a par value of $25 per share. Immediately after the sale of the bonds, the corporation’s securities had the following market values:

8% de bônus sem garantia $ 1.008.

Ações ordinárias 28.

Quais contas Kegin deve creditar para registrar a venda dos títulos?

Premium on Bonds Payable 116,400.

Paid-in Capital—Stock Warrants 63,600.

Premium on Bonds Payable 24,000.

Paid-in Capital—Stock Warrants 126,000.

Premium on Bonds Payable 52,800.

Paid-in Capital—Stock Warrants 127,200.

Premiums on Bonds Payable 180,000.

Use the following information for questions 55 and 56.

On May 1, 2012, Payne Co. issued $500,000 of 7% bonds at 103, which are due on April 30, 2022. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Payne’s common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2012, the fair value of Payne’s common stock was $35 per share and of the warrants was $2.

55. On May 1, 2012, Payne should credit Paid-in Capital from Stock Warrants for.

56. On May 1, 2012, Payne should record the bonds with a.

57. On July 4, 2012, Chen Company issued for $6,300,000 a total of 60,000 shares of $100 par value, 7% noncumulative preferred stock along with one detachable warrant for each share issued. Each warrant contains a right to purchase one share of Chen $10 par value common stock for $15 per share. The stock without the warrants would normally sell for $6,150,000. The market price of the rights on July 1, 2012, was $2.50 per right. On October 31, 2012, when the market price of the common stock was $19 per share and the market value of the rights was $3.00 per right, 24,000 rights were exercised. As a result of the exercise of the 24,000 rights and the issuance of the related common stock, what journal entry would Chen make?

58. Vernon Corporation offered detachable 5-year warrants to buy one share of common stock (par value $5) at $20 (at a time when the stock was selling for $32). The price paid for 4,000, $1,000 bonds with the warrants attached was $410,000. The market price of the Vernon bonds without the warrants was $360,000, and the market price of the warrants without the bonds was $40,000. What amount should be allocated to the warrants?

Use the following information for questions 59 and 60.

On May 1, 2012, Marly Co. issued $1,000,000 of 7% bonds at 103, which are due on April 30, 2022. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Marly’s common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2012, the fair value of Marly’s common stock was $35 per share and of the warrants was $2.

59. On May 1, 2012, Marly should record the bonds with a.

60. On May 1, 2012, Marly should credit Paid-in Capital from Stock Warrants for.

61. On July 1, 2012, Ellison Company granted Sam Wine, an employee, an option to buy 600 shares of Ellison Co. stock for $30 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $2,700. Wine exercised his option on October 1, 2012 and sold his 600 shares on December 1, 2012. Quoted market prices of Ellison Co. stock in 2012 were:

1 de julho US $ 30 por ação.

1 de outubro: US $ 36 por ação.

1 de dezembro US $ 40 por ação.

The service period is for three years beginning January 1, 2012. As a result of the option granted to Wine, using the fair value method, Ellison should recognize compensation expense on its books in the amount of.

62. On January 1, 2012, Trent Company granted Dick Williams, an employee, an option to buy 300 shares of Trent Co. stock for $30 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $2,700. Williams exercised his option on September 1, 2012, and sold his 300 shares on December 1, 2012. Quoted market prices of Trent Co. stock during 2012 were:

1 de janeiro US $ 30 por ação.

1 de setembro US $ 36 por ação.

1 de dezembro US $ 40 por ação.

The service period is for two years beginning January 1,2012. As a result of the option granted to Williams, using the fair value method, Trent should recognize compensation expense for 2012 on its books in the amount of.

63. On December 31, 2012, Gonzalez Company granted some of its executives options to purchase 120,000 shares of the company’s $10 par common stock at an option price of $50 per share. The Black-Scholes option pricing model determines total compensation expense to be $900,000. The options become exercisable on January 1, 2013, and represent compensation for executives’ services over a three-year period beginning January 1, 2013. At December 31, 2013 none of the executives had exercised their options. What is the impact on Gonzalez’s net income for the year ended December 31, 2013 as a result of this transaction under the fair value method?

64. On January 1, 2013 Reese Company granted Jack Buchanan, an employee, an option to buy 200 shares of Reese Co. stock for $40 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $2,400. Buchanan exercised his option on September 1, 2013, and sold his 100 shares on December 1, 2013. Quoted market prices of Reese Co. stock during 2013 were:

1 de janeiro US $ 40 por ação.

1 de setembro US $ 48 por ação.

1 de dezembro US $ 54 por ação.

The service period is for two years beginning January 1, 2013. As a result of the option granted to Buchanan, using the fair value method, Reese should recognize compensation expense for 2013 on its books in the amount of.

65. On June 30, 2012, Yang Corporation granted compensatory stock options for 30,000 shares of its $24 par value common stock to certain of its key employees. The market price of the common stock on that date was $31 per share and the option price was $28. Using a fair value option pricing model, total compensation expense is determined to be $96,000. The options are exercisable beginning January 1, 2014, providing those key employees are still in the employ of the company at the time the options are exercised. The options expire on June 30, 2015.

On January 4, 2014, when the market price of the stock was $36 per share, all options for the 30,000 shares were exercised. The service period is for two years beginning January 1, 2012. Using the fair value method, what should be the amount of compensation expense recorded by Yang Corporation for these options on December 31, 2012?

66. In order to retain certain key executives, Smiley Corporation granted them incentive stock options on December 31, 2011. 100,000 options were granted at an option price of $35.

por compartilhamento. Os preços de mercado das ações eram os seguintes:

December 31, 2012 $46 per share.

December 31, 2013 51 per share.

The options were granted as compensation for executives’ services to be rendered over a two-year period beginning January 1, 2012. The Black-Scholes option pricing model determines total compensation expense to be $1,000,000. What amount of compensation expense should Smiley recognize as a result of this plan for the year ended December 31, 2012 under the fair value method?

67. On January 1, 2013,Ritter Company granted stock options to officers and key employees for the purchase of 20,000 shares of the company’s $1 par common stock at $20 per share as additional compensation for services to be rendered over the next three years. The options are exercisable during a five-year period beginning January 1, 2016 by grantees still employed by Ritter. The Black-Scholes option pricing model determines total compensation expense to be $180,000. The market price of common stock was $26 per share at the date of grant. The journal entry to record the compensation expense related to these options for 2013 would include a credit to the Paid-in Capital—Stock Options account for.

68. On January 1, 2013, Evans Company granted Tim Telfer, an employee, an option to buy 2,000 shares of Evans Co. stock for $25 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $15,000. Telfer exercised his option on September 1, 2013, and sold his 1,000 shares on December 1, 2013. Quoted market prices of Evans Co. stock during 2013 were.

1 de janeiro US $ 25 por ação.

1 de setembro US $ 30 por ação.

1 de dezembro: US $ 34 por ação.

The service period is for three years beginning January 1, 2013. As a result of the option granted to Telfer, using the fair value method, Evans should recognize compensation expense for 2013 on its books in the amount of.

69. On December 31, 2012, Kessler Company granted some of its executives options to purchase 75,000 shares of the company’s $10 par common stock at an option price of $50 per share. The options become exercisable on January 1, 2013, and represent compensation for executives’ services over a three-year period beginning January 1, 2013. The Black-Scholes option pricing model determines total compensation expense to be $450,000. At December 31, 2013, none of the executives had exercised their options. What is the impact on Kessler’s net income for the year ended December 31, 2013 as a result of this transaction under the fair value method?

70. Weiser Corp. on January 1, 2009, granted stock options for 40,000 shares of its $10 par value common stock to its key employees. The market price of the common stock on that date was $23 per share and the option price was $20. The Black-Scholes option pricing model determines total compensation expense to be $360,000. The options are exercisable beginning January 1, 2012, provided those key employees are still in Weiser’s employ at the time the options are exercised. The options expire on January 1, 2013.

On January 1, 2012, when the market price of the stock was $29 per share, all 40,000 options were exercised. O valor da despesa de compensação que a Weiser deve registrar para 2009 pelo método do valor justo é.

71. On December 31, 2012, Houser Company granted some of its executives options to purchase 75,000 shares of the company’s $50 par common stock at an option price of $60 per share. The Black-Scholes option pricing model determines total compensation expense to be $1,500,000. The options become exercisable on January 1, 2013, and represent compensation for executives’ past and future services over a three-year period beginning January 1, 2013. What is the impact on Houser’s total stockholders’ equity for the year ended December 31, 2012, as a result of this transaction under the fair value method?

72. On June 30, 2012, Norman Corporation granted compensatory stock options for 40,000 shares of its $20 par value common stock to certain of its key employees. The market price of the common stock on that date was $36 per share and the option price was $30. The Black-Scholes option pricing model determines total compensation expense to be $480,000. The options are exercisable beginning January 1, 2013, provided those key employees are still in Norman’s employ at the time the options are exercised. The options expire on June 30, 2014.

On January 4, 2013, when the market price of the stock was $42 per share, all 40,000 options were exercised. What should be the amount of compensation expense recorded by Norman Corporation for the calendar year 2012 using the fair value method?

73. In order to retain certain key executives, Jensen Corporation granted them incentive stock options on December 31, 2011. 70,000 options were granted at an option price of $35 per share. Os preços de mercado das ações eram os seguintes:

December 31, 2012 $46 per share.

December 31, 2013 51 per share.

The options were granted as compensation for executives’ services to be rendered over a two-year period beginning January 1, 2012. The Black-Scholes option pricing model determines total compensation expense to be $700,000. What amount of compensation expense should Jensen recognize as a result of this plan for the year ended.

December 31, 2012 under the fair value method?

74. Grant, Inc. had 50,000 shares of treasury stock ($10 par value) at December 31, 2012, which it acquired at $11 per share. On June 4, 2013, Grant issued 25,000 treasury shares to employees who exercised options under Grant’s employee stock option plan. The market value per share was $13 at December 31, 2012, $15 at June 4, 2013, and $18 at December 31, 2013. The stock options had been granted for $12 per share. The cost method is used. What is the balance of the treasury stock on Grant’s balance sheet at December 31, 2013?

Use the following information for questions 75 through 77.

On January 1, 2012, Korsak, Inc. established a stock appreciation rights plan for its executives. It entitled them to receive cash at any time during the next four years for the difference between the market price of its common stock and a pre-established price of $20 on 80,000 SARs. Current market prices of the stock are as follows:

January 1, 2012 $35 per share.

December 31, 2012 38 per share.

December 31, 2013 30 per share.

December 31, 2014 33 per share.

Compensation expense relating to the plan is to be recorded over a four-year period beginning January 1, 2012.

*75. Qual o valor da despesa de compensação que a Korsak deve reconhecer no exercício encerrado em 31 de dezembro de 2012?

*76. What amount of compensation expense should Korsak recognize for the year ended December 31, 2013?

*77. On December 31, 2014, 16,000 SARs are exercised by executives. What amount of compensation expense should Korsak recognize for the year ended December 31, 2014?

Multiple Choice Answers—Dilutive Securities, Computational.

Multiple Choice — Dilutive Securities, CPA Adapted.

78. On January 2, 2012, Farr Co. issued 10-year convertible bonds at 105. During 2012, these bonds were converted into common stock having an aggregate par value equal to the total face amount of the bonds. At conversion, the market price of Farr’s common stock was 50 percent above its par value. On January 2, 2012, cash proceeds from the issuance of the convertible bonds should be reported as.

capital integralizado para todo o produto. capital integralizado para a parte do produto atribuível ao recurso de conversão e como um passivo para o saldo. um passivo pelo valor nominal dos títulos e capital integralizado para o prêmio sobre o valor nominal. uma responsabilidade por todo o produto.

79. Lang Co. issued bonds with detachable common stock warrants. Only the warrants had a known market value. The sum of the fair value of the warrants and the face amount of the bonds exceeds the cash proceeds. This excess is reported as.

Desconto em Obrigações a Pagar. Prêmio sobre Obrigações a Pagar. Ações comuns inscritas. Capital Pago em Excesso de Par - Warrants de Ações.

80. On January 1, 2012, Sharp Corp. granted an employee an option to purchase 9,000 shares of Sharp’s $5 par value common stock at $20 per share. The Black-Scholes option pricing model determines total compensation expense to be $210,000. The option became exercisable on December 31, 2013, after the employee completed two years of service. The market prices of Sharp’s stock were as follows:

January 1, 2012 $30.

December 31, 2013 50.

Para 2011, deve reconhecer a despesa de compensação pelo método do valor justo de.

*81. On January 2, 2012, for past services, Rosen Corp. granted Nenn Pine, its president, 20,000 stock appreciation rights that are exercisable immediately and expire on.

January 2, 2013. On exercise, Nenn is entitled to receive cash for the excess of the market price of the stock on the exercise date over the market price on the grant date. Nenn did not exercise any of the rights during 2012. The market price of Rosen’s stock was $30 on January 2, 2012, and $45 on December 31, 2012. As a result of the stock appreciation rights, Rosen should recognize compensation expense for 2012 of.

Multiple Choice Answers—Dilutive Securities, CPA Adapted.

MULTIPLE CHOICE — Earnings Per Share—Conceptual.

82. With respect to the computation of earnings per share, which of the following would be most indicative of a simple capital structure?

Common stock, preferred stock, and convertible securities outstanding in lots of even thousands Earnings derived from one primary line of business Ownership interest consisting solely of common stock None of these.

83. In computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the.

dividendos preferenciais em atraso. dividendos preferenciais em tempos de atraso (um menos a taxa de imposto de renda). dividendo anual preferencial (um menos a taxa de imposto de renda). nenhum desses.

84. In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are.

ponderado pelo número de dias em dívida. ponderado pelo número de meses em atraso. considerado pendente no início do ano. considerado pendente no início do primeiro ano relatado.

85. What effect will the acquisition of treasury stock have on stockholders’ equity and earnings per share, respectively?

Decrease and no effect Increase and no effect Decrease and increase Increase and decrease.

S 86. Due to the importance of earnings per share information, it is required to be reported by all.

Empresas Públicas Empresas Não Públicas.

P 87. A convertible bond issue should be included in the diluted earnings per share computation as if the bonds had been converted into common stock, if the effect of its inclusion is.

88. When computing diluted earnings per share, convertible bonds are.

ignored. assumido convertido se eles são dilutivos ou antidilutivos. assumido convertido apenas se eles são antidilutivos. assumido convertido apenas se eles são dilutivos.

89. Dilutive convertible securities must be used in the computation of.

lucro básico por ação apenas. lucro diluído por ação apenas. lucro diluído e básico por ação. nenhum desses.

90. In computing earnings per share, the equivalent number of shares of convertible preferred stock are added as an adjustment to the denominator (number of shares outstanding). If the preferred stock is cumulative, which amount should then be added as an adjustment to the numerator (net earnings)?

Annual preferred dividend Annual preferred dividend times (one minus the income tax rate) Annual preferred dividend times the income tax rate Annual preferred dividend divided by the income tax rate.

91. In the diluted earnings per share computation, the treasury stock method is used for options and warrants to reflect assumed reacquisition of common stock at the average market price during the period. If the exercise price of the options or warrants exceeds the average market price, the computation would.

lucro por ação diluído razoavelmente presente numa base prospectiva. razoavelmente presente a diluição potencial máxima de ganhos diluídos por ação numa base prospectiva. refletir o excesso do número de ações assumidas emitidas sobre o número de ações assumidas como a diluição potencial do lucro por ação. ser antidilutivo.

92. In applying the treasury stock method to determine the dilutive effect of stock options and warrants, the proceeds assumed to be received upon exercise of the options and warrants.

são usados ​​para calcular o número de ações ordinárias recompradas ao preço médio de mercado, quando se computa o lucro diluído por ação. são adicionados, líquidos de impostos, ao numerador do cálculo dos resultados por ação diluídos. são desconsiderados no cálculo do lucro por ação se o preço de exercício das opções e bônus for menor do que o preço de mercado final das ações ordinárias. nenhum desses.

93. When applying the treasury stock method for diluted earnings per share, the market price of the common stock used for the repurchase is the.

preço no final do ano. preço médio de mercado. preço no início do ano. nenhum desses.

94. Antidilutive securities.

should be included in the computation of diluted earnings per share but not basic earnings per share. são aqueles cuja inclusão nos cálculos de lucro por ação faria com que o lucro básico por ação excedesse o lucro diluído por ação. include stock options and warrants whose exercise price is less than the average market price of common stock. deve ser ignorado em todos os cálculos de ganhos por ação.

*95. Assume there are two dilutive convertible securities. The one that should be used first to recalculate earnings per share is the security with the.

maior ajuste de ganhos. maior ajuste de lucro por ação. ajuste de ganhos menor. menor reajuste de lucro por ação.

MULTIPLE CHOICE — Earnings Per Share—Computational.

96. Hill Corp. had 600,000 shares of common stock outstanding on January 1, issued 900,000 shares on July 1, and had income applicable to common stock of $1,680,000 for the year ending December 31, 2012. Earnings per share of common stock for 2012 would be.

97. At December 31, 2012, Hancock Company had 500,000 shares of common stock issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 100,000 of which were issued on October 1, 2012. Net income for the year ended December 31, 2012, was $1,530,000. What should be Hancock’s 2012 earnings per common share, rounded to the nearest penny?

98. Milo Co. had 800,000 shares of common stock outstanding on January 1, issued 126,000 shares on May 1, purchased 63,000 shares of treasury stock on September 1, and issued 54,000 shares on November 1. The weighted average shares outstanding for the year is.

99. On January 1, 2013, Gridley Corporation had 187,500 shares of its $2 par value common stock outstanding. On March 1, Gridley sold an additional 375,000 shares on the open market at $20 per share. Gridley issued a 20% stock dividend on May 1. On August 1, Gridley purchased 210,000 shares and immediately retired the stock. On November 1, 300,000 shares were sold for $25 per share. What is the weighted-average number of shares outstanding for 2013?

The following information is available for Barone Corporation:

January 1, 2013 Shares outstanding 1,500,000.

April 1, 2013 Shares issued 240,000.

July 1, 2013 Treasury shares purchased 90,000.

October 1, 2013 Shares issued in a 100% stockdividend 1,650,000.

The number of shares to be used in computing earnings per common share for 2013 is.

At December 31, 2012Rice Company had 300,000 shares of common stock and 10,000 shares of 6%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2012 or 2013. On January 30, 2014, prior to the issuance of its financial statements for the year ended December 31, 2013, Rice declared a 100% stock dividend on its common stock. Net income for 2013 was $1,140,000. In its 2013 financial statements, Rice’s 2013 earnings per common share should be $1.80. $1.89. $3.60. $3.80.

Fultz Company had 300,000 shares of common stock issued and outstanding at December 31, 2012. During 2013, no additional common stock was issued. On January 1, 2013, Fultz issued 400,000 shares of nonconvertible preferred stock. During 2013, Fultz declared and paid $210,000 cash dividends on the common stock and $175,000 on the nonconvertible preferred stock. Net income for the year ended December 31, 2013, was $1,120,000. What should be Fultz’s 2013 earnings per common share, rounded to the nearest penny? $1.35 $2.45 $3.15 $3.73.

At December 31, 2012 Pine Company had 200,000 shares of common stock and 10,000 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2012 or 2013. On February 10, 2014, prior to the issuance of its financial statements for the year ended December 31, 2013, Pine declared a 100% stock split on its common stock. Net income for 2013 was $900,000. In its 2013 financial statements, Pine’s 2013 earnings per common share should be $4.25. $4.00. $2.13. $1.25.

Stine Inc. had 400,000 shares of common stock issued and outstanding at December 31, 2012. On July 1, 2013 an additional 400,000 shares were issued for cash. Stine also had stock options outstanding at the beginning and end of 2013 which allow the holders to purchase 120,000 shares of common stock at $28 per share. The average market price of Stine’s common stock was $35 during 2013. The number of shares to be used in computing diluted earnings per share for 2013 is 896,000 824,000 696,000 624,000.

Kasravi Co. had net income for 2013 of $400,000. The average number of shares outstanding for the period was 200,000 shares. The average number of shares under outstanding options, at an option price of $30 per share is 12,000 shares. The average market price of the common stock during the year was $36. What should Kasravi Co. report for diluted earnings per share for the year ended 2013? $2.00 $1.98 $1.90 $1.89.

On January 2, 2013, Worth Co. issued at par $1,000,000 of 7% convertible bonds. Each $1,000 bond is convertible into 20 shares of common stock. No bonds were converted during 2013. Worth had 200,000 shares of common stock outstanding during 2013. Worth’s 2013 net income was $300,000 and the income tax rate was 30%. Worth’s diluted earnings per share for 2013 would be (rounded to the nearest penny): $1.74. $1.59. $1.50. $1.68.

Beaty Inc. purchased Dunbar Co. and agreed to give stockholders of Dunbar Co. 10,000 additional shares in 2014 if Dunbar Co.’s net income in 2013 is $500,000; in 2012 Dunbar Co.’s net income is $520,000. Beaty Inc. has net income for 2012 of $300,000 and has an average number of common shares outstanding for 2012 of 100,000 shares. What should Beaty report as diluted earnings per share for 2012? $3.33 $3.00 $2.73 $2.51.

Use the following information for questions 108 and 109.

Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 7.5% convertible bonds outstanding during 2013. The preferred stock is convertible into 40,000 shares of common stock. During 2013, Hanson paid dividends of $.90 per share on the common stock and $3 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2013 was $600,000 and the income tax rate was 30%.

Fugate Company had 750,000 shares of common stock issued and outstanding at December 31, 2012. On July 1, 2013 an additional 750,000 shares were issued for cash. Fugate also had stock options outstanding at the beginning and end of 2013 which allow the holders to purchase 225,000 shares of common stock at $20 per share. The average market price of Fugate’s common stock was $25 during 2013. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2013? 1,545,000 1,305,000 1,181,250 1,170,000.

Shipley Corporation had net income for the year of $600,000 and a weighted average number of common shares outstanding during the period of 200,000 shares. The company has a convertible bond issue outstanding. The bonds were issued four years ago at par ($2,500,000), carry a 7% interest rate, and are convertible into 40,000 shares of common stock. The company has a 40% tax rate. Diluted earnings per share are $2.06 $2.79. $2.94. $3.22.

Colt Corporation purchased Massey Inc. and agreed to give stockholders of Massey Inc. 50,000 additional shares in 2014 if Massey Inc.’s net income in 2013 is $600,000 or more; in 2012Massey Inc.’s net income is $615,000. Colt has net income for 2010 of $1,200,000 and has an average number of common shares outstanding for 2012 of 500,000 shares. What should Colt report as earnings per share for 2012?

Ganhos Básicos Ganhos Diluídos.

Por ação por ação.

On January 2, 2012, Perez Co. issued at par $10,000 of 8% bonds convertible in total into 1,000 shares of Perez’s common stock. No bonds were converted during 2012. Throughout 2012, Perez had 1,000 shares of common stock outstanding. Perez’s 2012 net income was $4,000, and its income tax rate is 30%. No potentially dilutive securities other than the convertible bonds were outstanding during 2012. Perez’s diluted earnings per share for 2012 would be (rounded to the nearest penny) $2.00. $2.28. $2.40. $4.56.

At December 31, 2012, Kifer Company had 600,000 shares of common stock outstanding. On October 1, 2013, an additional 120,000 shares of common stock were issued. In addition, Kifer had $10,000,000 of 6% convertible bonds outstanding at December 31, 2012, which are convertible into 270,000 shares of common stock. No bonds were converted into common stock in 2013. The net income for the year ended December 31, 2013, was $3,000,000. Assuming the income tax rate was 30%, the diluted earnings per share for the year ended December 31, 2013, should be (rounded to the nearest penny) $5.43. $4.00. $3.80. $3.33.

On January 2, 2013, Mize Co. issued at par $300,000 of 9% convertible bonds. Each $1,000 bond is convertible into 60 shares. No bonds were converted during 2013. Mize had 100,000 shares of common stock outstanding during 2013. Mize ‘s 2013 net income was $160,000 and the income tax rate was 30%. Mize’s diluted earnings per share for 2013 would be (rounded to the nearest penny) $1.36. $1.52. $1.60. US $ 1,79

At December 31, 2012, Sager Co. had 1,200,000 shares of common stock outstanding. In addition, Sager had 450,000 shares of preferred stock which were convertible into 750,000 shares of common stock. During 2013, Sager paid $750,000 cash dividends on the common stock and $500,000 cash dividends on the preferred stock. Net income for 2013 was $4,250,000 and the income tax rate was 40%. The diluted earnings per share for 2013 is (rounded to the nearest penny) $1.55. $2.18. $3.14. $3.55.

Use the following information for questions 117 and 118.

Lerner Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,500,000 of 10% convertible bonds outstanding during 2013. The preferred stock is convertible into 40,000 shares of common stock. During 2013, Lerner paid dividends of $1.35 per share on the common stock and $4.50 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2013 was $900,000 and the income tax rate was 30%.

Diluted earnings per share for 2013 is (rounded to the nearest penny) $3.21. $3.37. $3.53. $3.69. Yoder, Incorporated, has 4,200,000 shares of common stock outstanding on.

December 31, 2012. An additional 800,000 shares of common stock were issued on.

April 1, 2013, and 400,000 more on July 1, 2013. On October 1, 2013, Yoder issued 20,000, $1,000 face value, 8% convertible bonds. Each bond is convertible into 20 shares of common stock. No bonds were converted into common stock in 2013. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively? 5,000,000 and 5,000,000 5,000,000 and 5,100,000 5,000,000 and 5,400,000 5,400,000 and 6,200,000.

Nolte Co. has 4,800,000 shares of common stock outstanding on December 31, 2012. An additional 200,000 shares are issued on April 1, 2013, and 480,000 more on September 1. On October 1, Nolte issued $6,000,000 of 9% convertible bonds. Each $1,000 bond is convertible into 40 shares of common stock. No bonds have been converted. The number of shares to be used in computing basic earnings per share and diluted earnings per share on December 31, 2013 is 5,110,000 and 5,110,000. 5,110,000 and 5,170,000. 5,110,000 and 5,350,000. 5,880,000 and 5,320,000.

At December 31, 2012, Tatum Company had 2,000,000 shares of common stock outstanding. On January 1, 2013, Tatum issued 500,000 shares of preferred stock which were convertible into 1,000,000 shares of common stock. During 2013, Tatum declared and paid $1,800,000 cash dividends on the common stock and $600,000 cash dividends on the preferred stock. Net income for the year ended December 31, 2013, was $6,000,000. Assuming an income tax rate of 30%, what should be diluted earnings per share for the year ended December 31, 2013? (Round to the nearest penny.) $1.80 $2.00 $3.00 $2.50.

At December 31, 2012, Emley Company had 1,200,000 shares of common stock outstanding. On September 1, 2013, an additional 400,000 shares of common stock were issued. In addition, Emley had $8,000,000 of 6% convertible bonds outstanding at December 31, 2012, which are convertible into 800,000 shares of common stock. No bonds were converted into common stock in 2013. The net income for the year ended December 31, 2013, was $3,000,000. Assuming the income tax rate was 30%, what should be the diluted earnings per share for the year ended December 31, 2013, rounded to the nearest penny? $1.41 $2.25 $1.56 $1.63.

Grimm Company has 2,000,000 shares of common stock outstanding on December 31, 2012. An additional 150,000 shares of common stock were issued on July 1, 2013, and 300,000 more on October 1, 2013. On April 1, 2013, Grimm issued 6,000, $1,000 face value, 8% convertible bonds. Each bond is convertible into 40 shares of common stock. No bonds were converted into common stock in 2013. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively, for the year ended December 31, 2013? 2,150,000 and 2,330,000 2,150,000 and 2,150,000 2,150,000 and 2,390,000 2,450,000 and 2,630,000.

Use the following information for questions 124 and 125.

Information concerning the capital structure of Piper Corporation is as follows:

Ações ordinárias 150.000 ações 150.000 ações.

Ações preferenciais conversíveis 15.000 ações 15.000 ações.

6% convertible bonds $2,400,000 $2,400,000.

During 2013, Piper paid dividends of $0.80 per share on its common stock and $2.00 per share on its preferred stock. A ação preferencial é conversível em 30.000 ações ordinárias. The 6% convertible bonds are convertible into 75,000 shares of common stock. The net income for the year ended December 31, 2013, was $400,000. Suponha que a taxa de imposto de renda foi de 30%.

What should be the basic earnings per share for the year ended December 31, 2013, rounded to the nearest penny? $1.77 $1.95 $2.47 $2.67.

What should be the diluted earnings per share for the year ended December 31, 2013, rounded to the nearest penny? $2.13 $1.96 $1.89 $1.57.

Warrants exercisable at $20 each to obtain 50,000 shares of common stock were outstanding during a period when the average market price of the common stock was $25. Application of the treasury stock method for the assumed exercise of these warrants in computing diluted earnings per share will increase the weighted average number of outstanding shares by 50,000. 40,000. 10.000. 12,500.

Terry Corporation had 400,000 shares of common stock outstanding at December 31, 2012. In addition, it had 90,000 stock options outstanding, which had been granted to certain executives, and which gave them the right to purchase shares of Terry’s stock at an option price of $37 per share. The average market price of Terry’s common stock for 2012 was $50. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2012? 400,000 431,622 466,600 423,400.

Multiple Choice Answers—Earnings Per Share—Computational.

MULTIPLE CHOICE — Earnings Per Share—CPA Adapted.

Didde Co. had 300,000 shares of common stock issued and outstanding at December 31, 2012. No common stock was issued during 2013. On January 1, 2013, Didde issued 200,000 shares of nonconvertible preferred stock. During 2013, Didde declared and paid $150,000 cash dividends on the common stock and $120,000 on the preferred stock. Net income for the year ended December 31, 2013 was $930,000. What should be Didde’s 2013 earnings per common share? $3.10 $2.70 $2.60 $2.20.

At December 31, 2013 and 2012, Miley Corp. had 180,000 shares of common stock and 10,000 shares of 6%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2013 or 2012. Net income for 2013 was $480,000. For 2013, earnings per common share amounted to $2.67. $2.33. $2.11. $2.00.

Marsh Co. had 2,400,000 shares of common stock outstanding on January 1 and December 31, 2013. In connection with the acquisition of a subsidiary company in June 2012, Marsh is required to issue 100,000 additional shares of its common stock on July 1, 2014, to the former owners of the subsidiary. Marsh paid $300,000 in preferred stock dividends in 2013, and reported net income of $5,100,000 for the year. Marsh’s diluted earnings per share for 2013 should be $2.13. $2.04. $2.00. $1.92.

Foyle, Inc., had 610,000 shares of common stock issued and outstanding at December 31, 2012. On July 1, 2013, an additional 40,000 shares of common stock were issued for cash. Foyle also had unexercised stock options to purchase 32,000 shares of common stock at $15 per share outstanding at the beginning and end of 2013. The average market price of Foyle’s common stock was $20 during 2013. What is the number of shares that should be used in computing diluted earnings per share for the year ended.

When computing diluted earnings per share, convertible securities are ignored. reconhecidos apenas se forem diluidores. reconhecidos apenas se forem antidilutivos. reconheceu se eles são dilutivos ou antidilutivos.

In determining diluted earnings per share, dividends on nonconvertible cumulative preferred stock should be disregarded. adicionado de volta ao lucro líquido, declarado ou não. deduzido do lucro líquido somente se declarado. deduzido do lucro líquido, declarado ou não.

The if-converted method of computing earnings per share data assumes conversion of convertible securities as of the beginning of the earliest period reported (or at time of issuance, if later). início do primeiro período relatado (independentemente do tempo de emissão). meio do primeiro período relatado (independentemente do tempo de emissão). final do primeiro período relatado (independentemente do tempo de emissão).

IFRS and U. S. GAAP have significant differences in the reporting of securities with characteristics of debt and equity, such as convertible debt.

Under IFRS, all of the proceeds of convertible debt are recorded as long-term debt.

Under IFRS, convertible bonds are “bifurcated” — separated into the equity component (the value of the conversion option) of the bond issue and the debt component.

Under both U. S. GAAP and IFRS, the calculation of basic and diluted earnings per share is identical.

Under IFRS recording for the issuance of Bonds Payable, the Discount on Bonds Payable and the Paid-in Capital-Convertible Bonds could be utilized.

With regard to recognizing stock-based compensation IFRS and U. S. GAAP follow the same model. IFRS and U. S. GAAP standards are undergoing major reform on valuation issues. foi acordado que essas normas não serão fundidas devido às diferenças nas moedas. the reform of U. S. GAAP standards will not be addressed until IFRS standards have been finalized.

The primary IFRS reporting standards related to financial instruments, including dilutive securities, is IAS 33. IAS 39. IFRS 2. IAS 2.

When $5,000,000 in convertible bonds are issued at par with $800,000 in value of the equity option embedded in the bond, the IFRS journal entry willinclude a debit of $800,000 to Paid-in Capital — Convertible Bonds and a credit to Bonds Payable. US $ 800.000 para Prêmio sobre Obrigações a Pagar e um crédito para Capital Pago - Conversíveis. $800,000 to Bonds Payable and a credit to Paid-in Capital — Convertible Bonds. US $ 4.200.000 para dinheiro, juntamente com um débito de US $ 800.000 para desconto em títulos a pagar e um crédito para títulos a pagar e um crédito para capital pago - títulos conversíveis.

With regard to contracts that can be settled in either cash or shares IFRS requires that share settlement must be used. IFRS gives companies a choice of either cash or shares. O US GAAP exige que a liquidação de ações seja usada. o projeto FASB propõe que o IASB adote a abordagem US GAAP, exigindo que a liquidação de ações seja usada.

With regard to recognizing stock-based compensation under IFRSthe fair value of shares and options awarded to employees is recognized in the first fiscal period of the employees’ service. over the fiscal periods to which the employees’ services relate. in the last fiscal period of the employees’ service when the total value can be calculated. after last fiscal period of the employees’ service when the total value can be calculated.

Answers to Multiple Choice:

Briefly describe some of the similarities and differences between U. S. GAAP and IFRS with respect to the accounting for dilutive securities, stock-based compensation, and earnings per share.

Briefly discuss the convergence efforts that are under way by the IASB and FASB in the area of dilutive securities and earnings per share.

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