Problem 1 (20 Points) 1. Short-term obligations can be reported as long-term liabilities if: A. The firm has a long-term line of credit B. The firm has tentative plans to issue long-term bonds C. The firm intends to and has the ability to refinance as long-term D. The firm has the ability to refinance on a long-term basis 2. When Bonds are retired prior to their maturity date: A. GAAP has been violated B. The issuing company probably will report an ordinary gain or loss C. The issuing company probably will report an extraordinary gain or loss D.
Problem 1 (20 Points) 1. Short-term obligations can be reported as long-term liabilities if: A. The firm has a long-term line of credit B. The firm has tentative plans to issue long-term bonds C. The firm intends to and has the ability to refinance as long-term D. The firm has the ability to refinance on a long-term basis 2. When Bonds are retired prior to their maturity date: A. GAAP has been violated B. The issuing company probably will report an ordinary gain or loss C. The issuing company probably will report an extraordinary gain or loss D. The issuing company will report a non-operating gain or loss 3. Which one of the following contingencies requires financial statement disclosure: A. A lawsuit that the firm’s attorneys believe will be dropped B. A lawsuit that the firm’s attorneys believe will probably be settled for $75,000 C. A reasonably possible loss on a lawsuit that the firm’s attorneys cannot estimate the loss D. A reasonably possible loss on a lawsuit that the firm’s attorneys believe will be settled for $100,000 4. When the total expenses over the life of an operating lease are compared to the total expenses over the life of a capital lease, one will find that: A. The expenses of a capital lease are greater than the expenses of the operating lease B. The expenses of the capital lease and operating lease are equal C. The expenses of an operating lease are greater that the expenses of a capital lease D. No meaningful comparison can be made 5. What is the major reason that firms seek to classify leases as operating rather than capital? A. Operating leases are less costly and improve the company’s profitability throughout the life of the lease B. Operating leases improve the company’s balance sheet C. Operating leases are easier to obtain D. Capital leases hurt cash flow 6. The smoothing of pension expense is A. Unethical and not allowed by GAAP B. Allowed through amortization and deferral to prevent volatility in earnings C. Not allowed by GAPP…
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