Question

1.The rules used for determining taxable income in various countries:

• have the same objective as the rules used for determining income for financial reporting purposes.

• have an objective designed to provide a basis for funding government operations.

• are not the result of a political process.

• measure changes in a firm’s underlying economic condition.

2.Which one of the following contingencies must be accrued on the balance sheet?

Multiple Choice

• The likely loss on a lawsuit that the firm’s attorneys believe will be dropped.

• The probable loss on a lawsuit that the firm’s attorneys believe will be settled for $50,000.

• The reasonably possible loss on a lawsuit that the firm’s attorneys believe will be dropped.

• The reasonably possible loss on a lawsuit that the firm’s attorneys believe will be settled for $50,000.

3.Which of the following statements is not correct with respect to accounting for Guarantees?

Multiple Choice

• When one company guarantees the debt of another company, that contingency must be disclosed even if the contingency is only remotely possible.

• The Guarantee liability account represents deferred revenue associated with the stand ready fee.

• Both the “stand ready obligation” and the contingent future obligation are recorded at fair value.

• The Guarantee liability account decreases over the life of the loan as revenue is earned.

4. Investing activities include the cash effects of:

Multiple Choice

• producing and delivering goods and services.

• purchasing and disposing of productive assets used in production of revenue.

• borrowing and repaying loans used to purchase equipment.

• selling stocks and bonds to raise capital to purchase land.

Answer 1

1. Option, have the same objective as the rules used for determining income for financial reporting purposes

2. Option ,The reasonably possible loss on a lawsuit that the firm’s attorneys believe will be settled for $50,000.

3 Option ,The Guarantee liability account decreases over the life of the loan as revenue is earned.

4. Option ,purchasing and disposing of productive assets used in production of revenue.