Question

Problem Set Ps5-3 12. Which statement is true conceming off-balance sheet financing? a. It allows a company to overstate its debt to assets ratio. b. It is an intentional effort by a company to structure its financing arrangements to avoid showing liabilities on its balance sheet. C. It is a violation of GAAP and causes total liabilities to be understated. d. It occurs when companies report liabilities on the income statement as expenses rather than liabilities on the balance sheet. Wilson, Inc. issued bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer. What are these bonds called? a. Convertible bonds 13. b. Early retirement bonds. c. Callable bonds d. Secured bonds PARTI-MATCHING (6 points) nstructions: Match the cash expenditures given, below with the appropriate accounting treatment. An i listed treatments are appropriate for an e ndividual classification may be used more than once, or not at all. If none of the xpenditure, place an·X' in the answer space Treatments A. Record the expenditure as an asset and depreciate it. B. Record the expenditure as an asset and amortize jt. C. Record the expenditure as an asset but D. R do not systematically allocate it to expense. ecord the expenditure as an expense in the current period. Expenditures Offered a new flavor of one of the company's products Purchased a copyright from an author Paid for a complete renovation of the office building Paid for research and development costs Paid closing costs in acquiring new property that will be converted into a parking lot 1. 2. 4. 5. Paid legal costs to successfully defend a patent against infringement

Answer 1

Answer: 12-b Explanations It is intentional efforts by the company to structure its financing arrangements to avoid showing liabilities on its balance sheet. 13-c Explanations Callable bonds are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer PART-II MATCHING: S.no Expenditure S.no Treatments A Record the expenditure as an asset and depriciate it. B Record the expenditure as an asset and amortize it 3 Paid for a complete renovation of the office building 2 Purchased a copyright from author 6 Paid legal costs to successfully defend a patient against infringement. it. Paid closing costs in acquiring new property that will be convetd into a parking lot. 4 Paid for research and development costs pense. s c Record the expenditure as an asset but do not systematically allocate it to ex D Record the expenditure as an expense in the turrent year