QUESTION: 1729

Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting periods.

To reduce the federal income tax liability.
To adhere to the concept of conservatism.
To aid management in the decision-making process.
To match the costs of production with the revenues as earned.
To maximize accounting income.

Answer(s): D

Explanation:

If costs benefit more than one accounting period, they should be systematically and rationally allocated to all periods benefited. Matching refers to the process of recognizing expenses over the periods where revenues have benefited from these expenses.

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QUESTION: 1730

Which of the following is/are TRUE?

Losses due to union strike at a plant are classified as extraordinary items.
II. Unusual and infrequent items appear as part of income from continuing operations.
III. Gains from debt retirement are classified as extraordinary items.
IV. The loss from the sale of a portion of business segment is included in income from continuing operations.
II & III
I & IV
I & II
III & IV

Answer(s): D

Explanation:

Extraordinary items are those items are those which are unusual in nature and infrequent in occurrence.
Extraordinary items appear segregated from the income from continuing operations on the Income Statement.
Therefore, II is false. III is true under current GAAP. Losses due to a strike or the sale of a portion of a business segment are considered unusual but not infrequent and hence, do not qualify as extraordinary items.

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QUESTION: 1731

Which of the following is an operating cash flow?

Dividends paid out to shareholders.
Dividends received on investments in stocks.
All of these answers.
Cash used to replace the machine tool used in operational activities.

Answer(s): B

Explanation:

Dividends received on investments in stocks are classified as operating cash flows while dividends paid out to shareholders are financing cash flows. Cash used to replace the machine tool used in operational activities is an investing cash flow.

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QUESTION: 1732

When a plant asset is sold for more than its book value:

cash received plus accumulated depreciation plus gain on disposal equals the original cost.
cash received plus accumulated depreciation minus gain on disposal equals the original cost.
book value of the asset minus gain on disposal equals cash received.
original cost minus accumulated depreciation equals cash received plus gain on disposal.

Answer(s): B

Explanation:

Gain or loss on disposal of a fixed asset is calculated by subtracting the book value (Original cost - Accumulated Depreciation) from the cash received.

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Free CFA-Level-I Exam Braindumps (page: 433)

QUESTION: 1729

Explanation:

QUESTION: 1730

Explanation:

QUESTION: 1731

Explanation:

QUESTION: 1732

Explanation: