CPA Financial Accounting and Reporting (FAR) › Expenses
ABC Company recorded goods in transit purchased FOB shipping point at year end as purchases. The goods were excluded from ending inventory. What effect does the omission have on ABC's assets and retained earnings at year end?
Assets understated
Retained earnings understated
Both assets and retained earnings understated
No effect
Because the goods are in transit, the buyer should have included them in inventory. By not including them, inventory and assets are understated.
Under US GAAP, which of the following approaches would be used to determine income tax expense?
Net of tax and liability approach
The asset and liability approach
Perpetual expense approach
Border approach
The asset and liability approach is also known as the balance sheet approach and it is the approach used in US GAAP to determine income tax expense. The other approaches are distractors.
Which of the following statements is a primary objective of accounting for income taxes? To:
Identify all of the permanent and temporary differences of an enterprise
Compare an entity's federal tax liability to its state tax liability
Recognize the amount of deferred tax liabilities and deferred tax assets reported for future tax consequences
Estimate the effect of tax consequences of future events
The primary objective of income tax accounting is to recognize and account for deferred tax assets and liabilities.
ABC Company recorded goods in transit purchased FOB shipping point at year end as purchases. The goods were excluded from ending inventory. What effect does the omission have on ABC's assets and retained earnings at year end?
Assets understated
Retained earnings understated
Both assets and retained earnings understated
No effect
Because the goods are in transit, the buyer should have included them in inventory. By not including them, inventory and assets are understated.
Under US GAAP, which of the following approaches would be used to determine income tax expense?
Net of tax and liability approach
The asset and liability approach
Perpetual expense approach
Border approach
The asset and liability approach is also known as the balance sheet approach and it is the approach used in US GAAP to determine income tax expense. The other approaches are distractors.
Which of the following statements is a primary objective of accounting for income taxes? To:
Identify all of the permanent and temporary differences of an enterprise
Compare an entity's federal tax liability to its state tax liability
Recognize the amount of deferred tax liabilities and deferred tax assets reported for future tax consequences
Estimate the effect of tax consequences of future events
The primary objective of income tax accounting is to recognize and account for deferred tax assets and liabilities.
During which period of time should a lessee amortize a leased property? The lease is a finance lease and contains a written option to purchase.
The lease term
The economic life of the asset
The life of the asset capped at 30 years
Whichever is the shortest of these options
When dealing with a financing lease, the lessee should amortized the leased property over the economic life of the asset when there is a written purchase option or at the time the lessee obtains ownership of the asset.
During a period of falling prices, which of the following inventory valuation methods would yield the highest cost of goods sold?
LIFO
FIFO
Weighted average
Impossible to determine based no the provided information
Under FIFO, the oldest inventory goes to COGS. In a period of falling prices, the oldest inventory has the highest cost, driving up COGS.
During a period of falling prices, which of the following inventory valuation methods would yield the highest cost of goods sold?
LIFO
FIFO
Weighted average
Impossible to determine based no the provided information
Under FIFO, the oldest inventory goes to COGS. In a period of falling prices, the oldest inventory has the highest cost, driving up COGS.
In Year 1, a company has revenues of $600,000 and expenses of $400,000. Of the expenses, $70,000 represents a warranty on a company product. However, the company only paid $30,000 as a result of this warranty. The remainder is expected to be paid in a future year in which company officials believe there is a 60% chance that the company will have taxable income to be reduced by this warranty cost. The relevant tax rate is 30% for Year 1 and 32% for periods after that. What is the total amount of income tax expense to be recognized in Year 1?
$49,000
$59,200
$62,000
$70,000
Reported net income of $200K ($600K revenue - $400K expenses) must be adjusted to $240K to exclude the portion of the warranty expenses that weren't paid in Year 1. This means the the current portion of income expense is $72K ($240K x 30%). The remaining $40K deduction is deferred to a future year, so the company recognizes a deferred benefit of $12,800 ($40K x 32%). Total Year 1 tax expense is equal to $72K - $12,800.