Lucky Strike Mining Corp. (LSMC) reports in a footnote to the financial statements that it is party to a variable interest entity (VIE) through which it leases heavy equipment. LSMC has chosen not to report a residual value guarantee of $120 million for the equipment because it is not required to do so under accounting standards. However, the standards will change next year. What is the appropriate analytical treatment of this residual value guarantee? A) Ignore the liability because current accounting standards do not require it to be included on the balance sheet. Include it in next year’s balance sheet adjustments. B) Increase long-term liabilities by $120 million and decrease equity by $120 million. C) Increase long-term liabilities and long-term assets by $120 million.
C?
C) Increase long-term liabilities and long-term assets by $120 million.
You two are too good!
C for leases
Which of the follow characteristics is the least compelling evidence that a company has a conservative financial-reporting strategy? A) Fixed assets are carried at book value. B) Earnings growth has been steady and dependable over the last few years. C) The LIFO method is used.
B) Earnings growth has been steady and dependable over the last few years.
C? LIFO will reduce the NI due to higher COGS
CPK the CPA sunk the putt! I picked C too.
b
The balance sheet shows real estate owned at $192,000. An analyst estimates the value of the property to be $4 Million and adjusts the balance sheet accordingly. What liability account(s) will you adjust and by how much, if you assume the effective tax rate is 36%? A) Increase retained earnings by $3,808,000. B) Increase retained earnings by $2,437,120 and increase deferred taxes by $1,370,880. C) Increase retained earnings by $2,437,120.
A? there’s no indication of real estate having been sold so no cap gains technically. also, nevr saw anything in schweser dealing with annual property taxes. that said, my answer is prolly wrong. EDIT - Whoops! Answer choices increase RE not Equity so tax effects have to be included. I choose B.
swaptiongamma Wrote: ------------------------------------------------------- > C? LIFO will reduce the NI due to higher COGS did you miss the word “least compelling” ? otherwise no way you could have chosen C. Clear B.
B for real estate one
Least I would say LIFO too as we are suppose to adjust our BS from lifo to fifo, no?
A - you only defer taxes when you have a temporary difference in book vs. tax no?
cfaboston28 Wrote: ------------------------------------------------------- > Least I would say LIFO too as we are suppose to > adjust our BS from lifo to fifo, no? It is all about earnings…If you use LIFO, COGS is higher (inflationary env) --> earnings lower hence --> conservative. I don’t understand why deferred taxes have an adjustment for real estate… Will go with A.
QuantJock_MBA Wrote: ------------------------------------------------------- > Which of the follow characteristics is the least > compelling evidence that a company has a > conservative financial-reporting strategy? > > A) Fixed assets are carried at book value. > > B) Earnings growth has been steady and dependable > over the last few years. > > C) The LIFO method is used. B.
charu_mulye Wrote: ------------------------------------------------------- > swaptiongamma Wrote: > -------------------------------------------------- > ----- > > C? LIFO will reduce the NI due to higher COGS > > did you miss the word “least compelling” ? > > otherwise no way you could have chosen C. Clear B. Thanks man. I really get that dumb when I see a synthesis question. Though I gave the right explaination, I selected the wrong ans (‘least’). I’ll go with B for the Real Estates one.
I just checked real estate in the CFAI book and they really give no direction. I’m torn between A and B, but biased towards B