What impact will the amortization of an intangible asset over a longer than appropriate period have on a firm?
Answer(s): E
Earnings, not revenues will be improved because amortizing an intangible asset over a longer than appropriate period reduces the annual amortization expense; this improves pre-tax and after-tax profits.
The interest expense on a premium bond _______ over time.
Answer(s): A
Remember that the book value of the liability of any straight bond equals the face value at maturity. Hence, when the bond is issued at a premium, the premium amount is amortized over the life of the bond. The outstanding liability thus decreases steadily toward the face value. The decreasing liability decreases the interest expense over time.
According to the FASB conceptual framework, which of the following situations violates the concept of reliability?
Reliability has 3 primary qualities: verifiability, neutrality and representational faithfulness. Neutrality is violated here as information should not be prepared or reported to obtain a predetermined result, and should be free from bias.
The accumulated depreciation account should show
Answer(s): C
Depreciation recognized and accumulated on fixed assets still on the books is reflected in the Accumulated Depreciation account(s).
Costs that can be reasonably associated with specific revenues but not with specific products should be
Answer(s): B
The expense recognition principle of "associating cause and effect" or "matching" applies when a direct cause and effect relationship can be demonstrated between costs and particular revenues.
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