For your enjoyment: 1- Which of the following accurately describes the impact that a fixed asset write-down will have on a company’s accounts and financial ratios after the period in which the loss is charged to pre-tax income? A. Asset turnover will decrease. B. Profit margins will decrease. C. Deferred tax liabilities will decrease. D. Debt-to-equity will decrease. – 2-Conservative Corp. has reduced the estimated salvage value on all machinery and equipment balances to zero. The company uses straight-line depreciation for both reporting and tax purposes. All else being equal, which of the following statements is least accurate with respect to the effect of this change on subsequent financial statements? A. Reported net income will be lower. B. Current ratio will remain constant. C. Balance sheet assets will decrease. D. Operating cash flow will remain constant. – 3-The recorded cost for the purchase of new manufacturing equipment is least likely to include: A.Fees paid to the seller for setting up and testing the new equipment. B.The costs for shipping the equipment from the manufacturer to the company. C.Interest charges incurred on the installment payment plan arranged with the seller. D.The fair value of the old equipment that the seller accepted as a “trade in”.
C A C or D
answers and explanations please.
here you go: 1- Choice “c” is correct. The impairment loss is not recognized for tax purposes until the property is sold. Under SFAS 109, the value of deferred liabilities should reflect the tax payable when timing differences reverse. Consequently, the income tax effect of the write-down for reporting purposes (income statement) will not be recognized for tax purposes until later and the deferred tax liability (due later) will decrease. 2-Choice “d” is correct. Operating cash flow will be affected by the taxes paid by the firm. Lower salvage value leads to higher depreciation expense (a noncash expense). Higher depreciation expense leads to lower pretax income. Lower pretax income leads to lower income taxes paid and higher operating cash flow. 3-Choice “c” is correct. The only situation where interest charges are capitalized is for self-constructed assets. Interest charges related to the purchase of an asset are always expensed immediately. #2 says ‘least accurate’ ‘A’ can’t be right because lower salvage value -> higher dep exp. -> lower NI i got #1 wrong
here are my revised answers. C D C or D
thank god, feel good about this concepts. where did you get these questions from btw? i need more of them.
hey are from Stalla Passmaster 2007 copy i inherited from a 2007 candidate