QUESTION: 1649

Preferred and common stock differ in that

failure to pay dividends on common stock will not force the firm into bankruptcy, while failure to pay dividends on preferred stock will force the firm into bankruptcy.
common stock dividends are a fixed amount, while preferred stock dividends are not.
preferred stock dividends are deductible as an expense for tax purposes, while common stock dividends are not.
preferred stock has a higher priority than common stock with regard to earnings and assets in the event of bankruptcy.
none of these answers.

Answer(s): D

Explanation:

In the event of bankruptcy, the claims of preferred shareholders must be satisfied before common shareholders receive anything. The interests of common shareholders are secondary to those of other claimants.

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QUESTION: 1650

Which of the following statements is true?

Recognition is concerned with recognizing a liability from a current cash receipt.
The Accrual process would reduce an asset that is recorded as a result of a cash payment.
Realization is the process of converting non-cash resources and rights into money.
All of these are true.
Allocation is the process of formally recording or incorporating an item in the financial statements of an entity.

Answer(s): C

Explanation:

Realization is the process of converting non-cash resources and rights into money and is most precisely used in accounting and financial reporting to refer to sales of assets for cash or claims to cash.

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QUESTION: 1651

When valuing inventories using the lower-of-cost-or market (LCM), which of the following is/are true?

The inventory value cannot exceed the net realizable value.
II. If the inventory is written down from cost, the value of the inventory cannot fall below the net realizable value.
III. Inventories can only be written back up to the original cost.
IV. Write-downs are charged directly to retained earnings account.
I & III
I, II & III
II only
II & III

Answer(s): A

Explanation:

US GAAP requires that inventory be valued at the lower of cost or market value. This means that if the inventory value falls below the cost (FIFO, LIFO, average cost, etc.) for reasons which include price changes, obsolescence, damage or theft, the loss in value must be recognized immediately. Specifically, the inventory must be "written-down" in value and the loss recognized on the income statement. In the application of this principle, "market value" is defined as current replacement cost, except that this value cannot exceed the net realizable value (NRV) or fall below NRV minus the normal profit margin.

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QUESTION: 1652

In the full cost method, oil firms:

none of these answers.
are required to expense all oil-drilling costs resulting in dry holes.
must expense drilling costs which result in productive oil wells.
can capitalize all oil-drilling costs.

Answer(s): D

Explanation:

In extractive industries, firms are allowed to use either the full-cost method, in which all search and development costs can be capitalized, or the successful-efforts method, where all such costs are expensed unless they result in revenue-generating assets, in which case, they are capitalized.

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Free CFA-Level-I Exam Braindumps (page: 413)

QUESTION: 1649

Explanation:

QUESTION: 1650

Explanation:

QUESTION: 1651

Explanation:

QUESTION: 1652

Explanation: