Which one of the following is NOT true for a corporation?

Which one of the following is NOT true for a corporation?

A) Interest paid on bonds issued last year is tax deductible.
B) Common-stock dividends to be paid this year are not tax deductible.
C) Common-stock dividends to be paid this year will be tax deductible if the firm has a net loss for the year.
D) Preferred stock dividends to be paid this year are not tax deductible.

Answer: C

Clarity Music Company has a marginal tax rate of 34 percent and an average tax rate of 32 percent this year. It is planning to construct a new recording studio next year. The appropriate tax rate to be applied on the income generated from the new studio is

Clarity Music Company has a marginal tax rate of 34 percent and an average tax rate of 32 percent this year. It is planning to construct a new recording studio next year. The appropriate tax rate to be applied on the income generated from the new studio is

A) the average tax rate.
B) the marginal tax rate.
C) either one.
D) none of the above.

Answer: B

Trident Corporation had the following cash flows in the current year. Which one of the following is a financing activity cash flow?

Trident Corporation had the following cash flows in the current year. Which one of the following is a financing activity cash flow?

A) Rent on a warehouse amounting to $1.1 million
B) Purchase of $125,000 worth of five-year bonds issued by Towson Utilities
C) Preferred dividends to the tune of $330,000 paid to shareholders
D) Lease income received on a piece of land

Answer: C

Which one of the following is NOT a cash flow from investing activities?

Which one of the following is NOT a cash flow from investing activities?

A) buying and selling bonds or stock of other firms
B) buying or selling of land, buildings, and plant and equipment
C) cash payments of dividends to shareholders
D) issuing and paying out on insurance contracts

Answer: C

Cash flows from financing activities include all but one of the following:

Cash flows from financing activities include all but one of the following:

A) cash payments on the principal of long-term debt
B) issuing and paying out on insurance contracts
C) cash purchases of treasury stock
D) cash proceeds from a bank loan

Answer: B

Which one of the following is NOT a cash flow from operating activities?

Which one of the following is NOT a cash flow from operating activities?

A) cash payments on the principal of long-term debt
B) payments for utilities and rent
C) payments to purchase raw materials
D) cash receipts from selling goods and services

Answer: A

Which one of the following are NOT all noncash items?

Which one of the following are NOT all noncash items?

A) depreciation, deferred taxes, and prepaid expenses
B) depletion charges, taxes, and amortization
C) depletion charges, deferred taxes, and prepaid expenses
D) depreciation, amortization, and prepaid taxes

Answer: B

The major disadvantages of market-value accounting include

The major disadvantages of market-value accounting include

A) the difficulty in estimating the current value for some assets.
B) the difficulty in applying some of the valuation models used to estimate market values.
C) the resulting numbers are potentially open to abuse.
D) All of the above are disadvantages of market-value accounting.

Answer: D

Which of the following is NOT true about treasury stock?

Which of the following is NOT true about treasury stock?

A) It is the firm's own shares repurchased in the market by the firm.
B) It can be reissued under stock option and other employee benefit plans.
C) It lowers the value of the company.
D) It increases the net worth of the company.

Answer: C

Which one of the following is NOT true about goodwill?

Which one of the following is NOT true about goodwill?

A) It is an intangible asset.
B) It represents the value of all unrecorded assets acquired in a merger.
C) It equals the premium paid over the fair market value of the assets acquired in a merger.
D) When goodwill appears on a firm's balance sheet, it reduces the firm's net worth by that amount.

Answer: D

When prices are falling, valuing inventory using the LIFO method rather than FIFO gives

When prices are falling, valuing inventory using the LIFO method rather than FIFO gives

A) inventory a higher value but lowers net income.
B) inventory a lower value and also lowers net income.
C) both inventory and net income a higher value.
D) inventory a lower value and net income a higher value.

Answer: C

When prices are rising, valuing ending inventory using the FIFO method rather than LIFO gives

When prices are rising, valuing ending inventory using the FIFO method rather than LIFO gives

A) inventory a higher value but lowers net income.
B) inventory a lower value and also lowers net income.
C) both inventory and net income a higher value.
D) inventory a lower value and net income a higher value.

Answer: C

Petra, Inc., has $400,000 as current assets, $1.225 million as plant and equipment, and $250,000 as goodwill. In preparing the balance sheet, these assets should be listed in which of the following orders?

Petra, Inc., has $400,000 as current assets, $1.225 million as plant and equipment, and $250,000 as goodwill. In preparing the balance sheet, these assets should be listed in which of the following orders?

A) current assets, goodwill, and plant and equipment
B) current assets, plant and equipment, and goodwill
C) goodwill is not an asset and is not listed here
D) none of the above.



Answer: B

The conventional way of preparing a balance sheet is to list all assets in the order of their

The conventional way of preparing a balance sheet is to list all assets in the order of their

A) market value.
B) risk.
C) liquidity.
D) historical cost.

Answer: C

Trekkers Footwear bought a piece of machinery on January 1, 2006 at a cost of $2.3 million, and the machinery is being depreciated annually at an amount of $230,000 for 10 years. Its market value on December 31, 2008 is $1.75 million. The firm's accountant is preparing its financial statement for the fiscal year end on December 31, 2008. The asset's value should be recognized on the balance sheet at

Trekkers Footwear bought a piece of machinery on January 1, 2006 at a cost of $2.3 million, and the machinery is being depreciated annually at an amount of $230,000 for 10 years. Its market value on December 31, 2008 is $1.75 million. The firm's accountant is preparing its financial statement for the fiscal year end on December 31, 2008. The asset's value should be recognized on the balance sheet at

A) $2.3 million.
B) $1.61 million.
C) $230,000.
D) $1.75 million.




Answer: B

The cost principle states that an asset should be recognized on the balance sheet at

The cost principle states that an asset should be recognized on the balance sheet at

A) the market value of the asset.
B) at the market value less the accumulated depreciation on the asset.
C) at its historical cost.
D) at its historical cost less the accumulated depreciation on the asset.

Answer: C

On June 23, 2008, Mikhal Cosmetics sold $250,000 worth of its products to Rynex Corporation, with the payment to be made in 90 days on September 20. The goods were shipped to Rynex on July 2. The firm's accountants should recognize the sale on

On June 23, 2008, Mikhal Cosmetics sold $250,000 worth of its products to Rynex Corporation, with the payment to be made in 90 days on September 20. The goods were shipped to Rynex on July 2. The firm's accountants should recognize the sale on

A) June 23, 2008.
B) July 2, 2008.
C) September 20, 2008.
D) none of the above.

Answer: A

According to the realization principle, revenue from a sale of the firm's products are recognized

According to the realization principle, revenue from a sale of the firm's products are recognized

A) when the products are shipped to the buyer.
B) when the buyer orders the goods.
C) when cash is realized from the sale of the products.
D) at the time of the sale.

Answer: D

Tyson Corporation bought raw materials on April 23, 2008 and also on July 2, 2008. Products produced in the months of May were sold in July. The firm uses FIFO to value its inventory. According to the matching principle, the firm's accountant should associate

Tyson Corporation bought raw materials on April 23, 2008 and also on July 2, 2008. Products produced in the months of May were sold in July. The firm uses FIFO to value its inventory. According to the matching principle, the firm's accountant should associate

A) the inventory acquired on July 2 with the products sold.
B) the inventory acquired on April 23 with the products sold.
C) Neither of these dates is valid because the products were sold in July.
D) None of the above.

Answer: B

The matching principle calls for the accountant of a firm to

The matching principle calls for the accountant of a firm to

A) identify an asset with each liability of the firm.
B) associate the revenue generated from a sale to the costs incurred to produce the product.
C) match each item of inventory with the historical cost at which it was acquired.
D) none of the above

Answer: B