QUESTION: 1785

If a firm recognizes expenses before that dictated by accrual accounting, which of the following best describes the effects on income, total assets and retained earnings?

Income Total Assets Retained Earnings

Understated Understated Understated
II.Understated Overstated Understated
III.Overstated Understated Overstated
IV.Understated Overstated Overstated
III.
IV.
I.
II.

Answer(s): C

Explanation:

Income is understated. Hence, retained earnings and equity are understated. Hence, assets are understated.

Reveal Solution Next Question

QUESTION: 1786

At the beginning of fiscal 1998 Jones Company had retained earnings of $1,000,000 and at the beginning of fiscal 1999 Jones Company had retained earnings of $1,200,000. During fiscal 1998 Jones Company declared a dividend of $300,000 and declared a 3 for 1 stock split. How much did Jones Company earn during fiscal

1998?

$200,000
$166,667
$600,000
$500,000

Answer(s): D

Explanation:

The company's retained earnings increased by $200,000 during 1998 and dividends were paid of $300,000, therefore earnings had to be $500,000. The stock split has no effect on retained earnings.

Reveal Solution Next Question

QUESTION: 1787

Under what condition would a firm report cash, or cash equivalents as a long-term asset?

When a firm maintains less than its' minimum target cash balance.
When funds are set aside for a specific long-term purpose such as plant expansion.
All of these answers.
When a firm has an under-funded pension obligation.
None of these answers.

Answer(s): B

Explanation:

A firm may maintain cash equivalents that are earmarked for plant expansion, sinking fund payments, or other long-term uses. In these situations many firms would report this portion of its cash, or cash equivalents as long- term because these funds are not available in the daily operation of the business.

Reveal Solution Next Question

QUESTION: 1788

The amount by which a plant asset depreciated is classified as ________.

revenue
an expense
a liability
an asset

Answer(s): B

Explanation:

Depreciation is the periodic allocation of the cost of a tangible, long-term asset over its estimated useful life, and therefore a period expense.

Reveal Solution Next Question

Free CFA-Level-I Exam Braindumps (page: 447)

QUESTION: 1785

Explanation:

QUESTION: 1786

Explanation:

QUESTION: 1787

Explanation:

QUESTION: 1788

Explanation: