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Theory Exam 02 Review

Chapter 09 Assets I 1) How does overhead within a company impact the amount capitalized for self-constructed assets?

2) How do we account for group asset purchases?

3) How do we now account for donated assets? What was the change in the requirement?

4) What are the depreciation methods and how are they computed? How does salvage value enter into each?

Chapter 09 (contd) Assets I 5) What are the reasons for capitalizing rather than expensing future costs related to fixed assets?

6) How are we to account for exchanges of fixed assets especially with regards to gains where the trade in allowance is greater than the book value of the old asset?

7) What are differences between U.S. and International standards with regards to fixed assets?

8) What costs are to be capitalized when a fixed assets is acquired?

Chapter 10 Assets II 1) What are the three methods of accounting for investments in equity securities? When is each to be used? How does each impact the balance sheet and the income statement each time financial statements are prepared?

2) Give examples of intangible assets. What costs are capitalized when such are internally developed? How are intangible assets amortized and what life should be used?

3) What is goodwill? How is goodwill accounted for each period? What are the disclosure requirements related to goodwill?

4) How are research and development costs accounted for? Why?

5) How do the U.S. standards and International standards differ with regards to intangible assets and research and development costs?

Chapter 11 - Bonds 1) How is the price of a bond issue computed? Why is the price most times different from the face value? How do we originally record the bond issue and how is interest expense computed and recorded?

2) What are bond issue costs and how are they accounted for?

3) What are call provisions on bonds?

4) What are convertible bonds and how is the conversion to be accounted for?

Chapter 11 (contd) - Bonds 5) What are loss contingencies and when are they to be recorded versus just being disclosed? How do we account for gain contingencies. What happens when the future actual loss is different from the probable loss?

6) What is off-balance sheet financing and what are disclosure requiremenst?

7) How do we account for a troubled debt restructure where terms of debt are modified?

8) What is the long term debt to assets ratio, the interest coverage ratio, and the debt service ratios? What does each show?

Chapter 12 Taxes 1) In theory, what does the accounting profession wish for income tax expense to show?

2) How is income tax expense computed? What are permanent differences and how do they impact income tax expense? What are temporary differences and how do they impact income tax expense? What temporary differences create deferred tax assets and which develop deferred tax liabilities?

3) What is a net operating loss and how is it accounted for?

4) What is intraperiod tax allocation?

5) How do we distinguish between current and long term deferred tax assets/liabilities?

Chapter 13 Leases 1) What are the criteria for capitalizing a lease?

2) How is the lease asset and lease obligation determined for the lessee? How do guaranteed and unguaranteed residuals impact the computation? What discount rate is to be used by the lessee?

3) What differentiates a direct financing and sales type lease for a lessor? How does the recording of each differ?

4) What is a sales and leaseback? How are these accounted for? What do we do with gain on the sale?

5) What are the disclosures for the lessee and lessor regarding both capital and operating leases?

Chapter 14 Pensions 1) What makes up the differences between defined benefit and defined contribution plans?

2) Describe the five components of pension expense for a defined benefit plan.

3) How does prior service cost impact pension expense?

4) Why does the expected gain on plan assets end up being what is deducted to get to pension expense?

Chapter 14 (contd) Pensions 5) What two items make up the cumulative gain/loss component of pension expense? What is the corridor approach to this component of pension expense?

6) What is the settlement rate and how is it used?

7) What is the difference between the projected benefit obligation and the accumulated benefit obligation?

8) What will be the final liability that will be shown on the balance sheet for a defined benefit plan?

Chapter 15 Equity 1) How is the issue of stock for cash and for other property recorded?

2) What are differences between common and preferred stock? What is cumulative preferred stock?

3) What are authorized shares, issued shares, and outstanding shares? What amount makes up the amount within the stock accounts?

4) What are stock warrants and how are they accounted for?

Chapter 15 (contd) Equity 5) What are stock dividends and stock splits and how does the accounting for these differ? What is the impact on the balance sheet of each?

6) How is treasury stock accounted for under the cost and par value methods? What are the entries when treasury stock is purchased and later resold? How is treasury stock reported on the balance sheet?

7) What is a quasi-reorganization and when would such be used? What are the steps in accounting for a quasi-reorganization. Even though a company is ugly that uses a quasi-reorganization why are the financial statements dated?

8) What is the return on common shareholders equity and the financial structure ratios? What do each show?