When the FIFO method is used, ending inventory units are priced at the
Answer(s): A
The first-in-first-out (FIFO) method is based on the assumption that the costs of the first items acquired should be assigned to the first items sold, therefore ending inventory on hand is based on the most recent prices.
Disclosure of information about the extent, nature, and terms of financial instruments with off-balance- sheet credit or market risk and about concentrations of credit risk is required for all financial instruments. Which of the following is defined as a financial instrument?
Answer(s): B
A financial instrument is cash, evidence of an ownership interest in an entity, or a contract that both:1. imposes on one entity a contractual obligation to deliver cash or another financial instrument to a second entity or to exchange financial instruments on potentially unfavorable terms with the second entity, and2. conveys to that second entity a contractual right (A) to receive cash or another financial instrument from the first entity or (B) to exchange other financial instruments on potentially favorable terms with the first entity.Therefore, a note payable in U.S. Treasury bonds gives the holder the contractual right to receive and imposes on the issuer the contractual obligation to deliver bonds that are themselves financial instruments.
Firm A capitalized an expense and an otherwise identical Firm B expensed it. Then,
Since the capitalized expense represents an investing cash outflow, the investing cash flow is lower for A. Firm B charges all the expenditure to operating cash flow and has a lower operating cash flow than A.
Which of the following is/are true about "compensating balances?"
Answer(s): D
Compensating Balances are cash balances in the form of demand deposits which are used to satisfy existing borrowing arrangements and assure a good credit standing. They are not reserves maintained for emergencies. Unrestricted balances are disclosed in footnotes; however, if they are legally restricted for specific purposes, they must be separately presented in the balance sheet.
The following asset is subject to the least amount of depreciation or amortization during its useful life:
Land is not subject to any depreciation. The useful life of land does not diminish over time as its economic value does not diminish based on use.
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