Question:

> Using the definition of a liability from FASB Concepts Statement No. 6, indicate whether each of the following should be listed as a liability by Pauli Company. (a) Pauli was involved in a highly publicized lawsuit last year. Pauli lost and was ordered t

> The company sells custom-designed engineering equipment. During the most recent year, the company received the following customer orders: For Machine A, selling price = $125,000, production cost = $67,000 For Machine B, selling price = $235,000, producti

> Using the definition of an asset from FASB Concepts Statement No. 6, indicate whether each of the following should be listed as an asset by Ingalls Company. (a) Ingalls has legal title to a coal mine in a remote location. Historically, the mine has yield

> How do auditors react to the existence of an earnings-based bonus plan in the company being audited?

> Chris Titera is the chief financial officer (CFO) for Dallas Company. It is January 10, and Chris has just finished compiling the preliminary financial results for the most recent fiscal year, which ended on December 31. The preliminary results indicate

> State how each of the following accounts should be classified on the balance sheet. (a) Treasury Stock (b) Retained Earnings (c) Vacation Pay Payable (d) Foreign Currency Translation Adjustment (e) Allowance for Bad Debts (f) Liability for Pension Paymen

> Benjamin Vincent is the chief financial officer (CFO) of Annie Company. The company’s chief executive officer (CEO) has asked Benjamin to design an incentive scheme that will motivate employees to focus more on the company’s bottom-line results. Benjamin

> A balance sheet contains the following classifications: (a) Current assets (b) Investments (c) Property, plant, and equipment (d) Intangible assets (e) Other noncurrent assets (f) Current liabilities (g) Long-term debt (h) Other noncurrent liabilities (i

> John Sleaze and Mary Scum run Earnings Management, Inc., a consulting business. They have the following items in their product line: 1. A database that lists types of depreciable assets and the minimum and maximum depreciation lives that have been accept

> On December 31, the warranty liability was estimated to be $100,000. On January 16 of the following year, it was learned that one week before, on January 9, poor-quality materials were introduced into the production process. This mistake is expected to c

> Heidelberg Company has been in business for 100 years. The past three years have been trying ones for the company, which has reported operating losses in each of those three years. The board of directors is planning a huge, year-long celebration of the c

> Why are independent audits necessary?

> On December 31, the warranty liability was estimated to be $150,000. On January 16 of the following year, results of a study done before December 31 were received. These study results indicate that products would require a much larger amount of warranty

> Cruella DeVil is the chief financial officer (CFO) of a local publicly traded company. She was recently invited to speak to accounting students at the local university. One of the students asked Cruella whether she thought earnings management was ethical

> First Federal Finance Co. has a large investment securities portfolio. In the “old days,” First Federal was allowed to value these securities at the lower of cost or market. U.S. GAAP now requires current market valuation on the balance sheet for most se

> Use the information in Practice 3-2 to compute the proportion of total assets in each of the following asset categories. Assume that the list contains all the asset items. (a) Inventory (b) Property, Plant, and Equipment In Practice 3-2 Goodwill . . . .

> Dalian Company is a Chinese state-owned enterprise. This means that ownership of the company rests in one of the ministries of the Chinese central government. Ministry officials have decided to sell a portion (40%) of the government’s ownership interest

> What is one way to distinguish between earnings management that is ethically right and earnings management that is ethically wrong?

> The Piedmont Computer Company has brought legal action against ATC Corporation for alleged monopolistic practices in the development of software. The claim has been pending for two years, with both sides accumulating evidence to support their positions.

> What factors influence whether a manager actually violates GAAP in an effort to manage earnings?

> Following are summaries of the balance sheets of five companies. The amounts are all stated as a percentage of total assets. The five companies are • BankAmerica, a large bank • Kelly Services, a firm that provides tem

> Refer to the GAAP oval in Exhibit 6-7. (a) In what important way is point E different from point C? (b) In what important way is point A different from point C? EX 6-7 THE GAAP OVAL The GAAP Oval D A B Lowest Highest GAAP GAAP Earnings Earnings

> Forbes annually provides a list of the most valuable companies in the world. The top 10 most valuable companies in the United States, from the 2010 Forbes 2000, follow. As an analyst for a securities broker, you are asked the following questions concer

> Use the information in Practice 3-7 to compute the debt ratio. Assume that the list includes all liability and equity items. In Practice 3-7 Additional Paid-In Capital, Common . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

> What is a benefit of a company’s reporting a pro forma earnings number? What is a danger with pro forma earnings numbers?

> 1. Which of the following is the true purpose of information presented in notes to the financial statements? (a) To provide disclosures required by generally accepted accounting principles. (b) To correct improper presentation in the financial statements

> What is a pro forma earnings number?

> Blake Matthews incorporated his paper manufacturing operations on January 1, 2013, by issuing 5,000 shares of $1 par common stock to himself. The following balance sheet for the new corporation was prepared. Looseleaf Corporation Balance Sheet January 1

> What major accounting action has been taken since Chairman Levitt’s speech in 1998 to limit the abuse of revenue recognition to manage earnings?

> What criteria are generally used (a) In classifying assets as current? (b) In classifying liabilities as current?

> The accountant for Delicious Bakery prepares the following condensed balance sheet. Delicious Bakery Condensed Balance Sheet December 31, 2013 Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

> In what way is the concept of materiality contained in SAB 99 different from the traditional concept of materiality?

> The following balance sheet is submitted to you for inspection and review. Appalachian Freight Company Balance Sheet December 31, 2013 Assets Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

> (a) What is the purpose of internal earnings targets? (b) What is the risk associated with internal earnings targets?

> Stella Valerio is a financial analyst who follows Olsen Company and other companies in the same industry. You have just done a historical analysis of Stella’s earnings forecasts for Olsen Company and noticed that its earnings have exceeded Stella’s forec

> The bookkeeper for Chordwise Music, Inc., reports the following balance sheet amounts as of June 30, 2013. Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $286,800

> What type of company would be most likely to establish a cookie jar reserve?

> Distinguish between contingent liabilities and estimated liabilities.

> What accounting actions have been taken since Chairman Levitt’s speech in 1998 to limit the use of big-bath charges to manage earnings?

> (a) What is a subjective acceleration clause? (b) What is an objective acceleration clause? (c) How do these clauses in debt instruments affect the classification of a liability?

> What is the benefit of “taking a big bath”?

> List and describe the steps in the accounting process. Why are these steps necessary? Are any steps optional?

> How can expected refinancing impact the classification of a liability?

> Company A has created fictitious transactions to report more favorable earnings. Is it likely that this is the only action Company A has taken to manage earnings? Explain.

> Indicate under what circumstances each of the following can be considered noncurrent: (a) Cash and (b) Receivables.

> You are on the accounting staff of Chisos Manufacturing Company. Chisos has a $100 million loan with Rio Grande National Bank. One of the covenants associated with the loan is that Chisos must maintain a current ratio greater than 1.5. As of January 20,

> Is there anything wrong with using a different accounting estimate this year compared to last year so long as both estimates fall within a generally accepted range for your industry?

> What does the difference between current assets and current liabilities measure?

> What are the five labels in the earnings management continuum (see Exhibit 6-4), and what general types of actions are associated with each label? EX 6-4 THE EARNINGS MANAGEMENT CONTINUUM Sawy Aggressive Accounting Deceptive Accounting Transaction F

> How does financial reporting impact a company’s cost of capital?

> What does the cost of capital mean?

> Distinguish between management accounting and financial accounting.

> How has the FASB used note disclosure as a tool of compromise?

> The flexibility that is a key part of the estimates and judgments inherent in accrual accounting allows desperate managers to manipulate the reported numbers. Why not do away with this flexibility and just require companies to report raw cash flow data w

> You are a manager with Doman & Detmer, a mid-sized local accounting firm. You have been with the firm for six years. Currently, you are working on the McMahon Company audit engagement. You are supervising a team of seven staff and senior accountants. You

> Under what circumstances may offset balances be properly recognized on the balance sheet?

> When the SEC launches an investigation against a company and finds evidence of misleading financial reporting, historically what type of punishments has the SEC used?

> What is the most common career path for a college graduate who starts out in public accounting?

> Describe one setting in which a manager might have an incentive to manipulate the accrual assumptions so that lower earnings are reported.

> Briefly describe the five traditional assumptions that influence the conceptual framework.

> What guidelines are used to match costs with revenues in determining income?

> Identify and describe five different measurement attributes.

> Name three exceptions to the general rule that assumes revenue is recognized at the point of sale. What is the justification for these exceptions?

> Distinguish between the recording and reporting phases of the accounting process.

> What are the three major categories in a corporation’s Equity section?

> You are a member of the most popular student club on campus, the Accounting Antidefamation Organization. Recently, the field of accounting was savagely attacked in an article written by a militant economics student group and published in the student news

> What two factors must be considered in deciding the point at which revenues and gains should be recognized? At what point in the revenue cycle are these conditions usually met?

> What three elements are contained in a balance sheet?

> How are revenues and expenses different from gains and losses?

> What is the current numerical materiality standard in accounting?

> Income as determined by income tax regulations is not necessarily the same as income reported to external users. Why might there be differences?

> Of what value is consistency in financial reporting?

> What different measurement methods may be applied to net assets in arriving at income under the capital maintenance approach?

> Define comparability.

> After the necessary definitions and assumptions that support the determination of income have been made, what are the two methods of income measurement that may be used to determine income? How do they differ?

> Accounting is sometimes characterized as dealing only with the past. Give examples of how accounting information can be of value in dealing with the future.

> You are the controller for Cam-Ry Industries. Your company has recently received a large amount of unfavorable publicity because an SEC investigation uncovered a systematic 2-year effort by Cam-Ry’s management to manipulate reported earnings. The primary

> Does reliability imply absolute accuracy? Explain.

> Under IASB standards, how is a change in accounting principle reported?

> Distinguish between the qualities of relevance and reliability.

> Explain briefly the difference in accounting treatment of (a) A change in accounting principle and (b) A change in accounting estimate.

> Why is it so difficult to measure the cost effectiveness of accounting information?

> Which of the following would not normally qualify as an extraordinary item? (a) The write-down or write-off of receivables. (b) Major devaluation of foreign currency. (c) Loss on sale of plant and equipment. (d) Gain from early extinguishment of debt. (e

> One objective of financial reporting is understandability. Understand able to whom?

> Pop-Up Company has decided to sell its lid manufacturing division even though the division is expected to show a small profit this year. The division’s assets will be sold to another company at a loss of $10,000. What information (if any) should Pop-Up d

> Identify the major objectives of financial reporting as specified by the FASB.

> What are restructuring charges, and why do they generate controversy?

> Distinguish between (a) Real and nominal accounts, (b) General journal and special journals, and (c) General ledger and subsidiary ledgers.

> What are the main similarities and differences between a manual and an automated accounting system?

> List and explain the main reasons why a conceptual framework of accounting is important.

> Define comprehensive income. How does it differ from net income?

> What is the IASB? What is the SEC position regarding IASB standards?

> What is the general practice in reporting earnings per share?

> Why are differing national accounting standards converging to a common global standard?

> One of your clients overheard a computer manufacturer sales representative saying that the computer will make the accountant obsolete. How would you respond to this comment?

> What are the major types of notes attached to the financial statements?

> What are the major advantages of computers as compared with manual processing of accounting data?

> Why is standard setting such a difficult and complex task?

> Refer to the 2009 balance sheet for Consolidated Edison. 1. Compute the following financial ratios for Consolidated Edison for 2008: (a) Debt ratio (total liabilities/total assets) (b) Current ratio (current assets/current liabilities) (c) Long-term debt

> What has academic research shown with respect to earnings-based bonus thresholds?