1. Proponents of immediately writing-off goodwill acquired in a business combina

ID: 2448525 • Letter: 1

Question

1. Proponents of immediately writing-off goodwill acquired in a business combination argue that

A. goodwill implies future profitability thus it has future economic benefit and is an asset

B. if written-off it would receive the same treatment as inherent goodwill, as the costs leading to inherent goodwill are also written-off

C. it should only be reported as an asset if it is related to the acquisition of a service company D. the amortization period for writing-off goodwill is too long

2. If it is reasonably possible that a contingent liability has occurred

A. it should not be accrued (journalized)

B. it should be journalized if the amount of the contingent liability can be reasonably estimated

C. it should be journalized if the amount of the contingent liability can be reasonably estimated and it should also be disclosed in the notes to the financial statements

D. it should only be accrued (journalized) if the contingency is a gain contingency

3. One of the traits of the asset-liability method for accounting for income taxes is that

A. it’s based on the concept that income tax expense is related to the period in which the income is recognized

B. it’s not allowable to be used under current U.S. GAAP

C. it requires the use of discounting future deferred tax liabilities and future deferred tax assets to their present value

D. it’s oriented towards the balance sheet to report the total taxes payable or total tax benefit that will actually be realized or assessed on temporary differences

4. Off-balance sheet financing

A. can be achieved by the lessor by entering into an operating lease agreement

B. can be achieved by the lessee by entering into an operating lease agreement

C. can be achieved by the lessor by entering into a capital lease agreement

D. can be achieved by the lessee by entering into a capital lease agreement

5. When accounting for pension plans, the accounting for defined contribution plan differs significantly from the accounting for defined benefit plan. One of the reasons for these differences is that

A. a defined contribution plan requires the calculation and recording of the projected benefit obligation

B. a defined contribution plan requires the calculation and recording of the accumulated benefit obligation

C. under a defined benefit plan more risks are borne by the employer

D. under a defined benefit plan more risks are borne by the employee

6. Under current U.S. GAAP when an entity has long-term debt, one of the criteria necessary to recognize early extinguishment of the long-term debt is

A. the entity initiates in-substance defeasance

B. the entity is legally released from being the primary obligor

C. the entity’s intent is to refinance the long-term debt

D. the entity has the ability to refinance the long-term debt

7. A valuation allowance account may be necessary for deferred tax assets to reduce the deferred tax asset amount to its expected realized value. This criteria for making this determination is referred to as

A. more-likely-than-not

B. probable

C. reasonably possible

D. the objective approach

8. Assuming the criteria are met for a capital lease, the lessor will not recognize a direct financing lease when

A. the lease payments received consists of both an element for interest revenue and recovery of the investment

B. the lessee depreciates the leased asset

C. there is profit or loss in the lease transaction for the lessor

D. indirect costs (e.g., maintenance) of the leased asset are borne by the lessee

9. Receipt of dividends is treated as a reduction in the carrying value of an investment under the

A. consolidated method of accounting

B. cost method of accounting

C. lower of cost or market method of accounting

D. equity method of accounting

10. If a bond’s stated rate of interest is greater than the market rate of interest for similar debt instruments having the same level of risk, the bond will sell

A. at a premium

B. at a discount

C. at its stated (face) amount

D. at an amount that cannot be determined with the given information

Explanation / Answer