1. A problem using the direct write-off method for uncollectible accounts receivable isA. it understates the future amount of receivables expected to be collected (future cash inflow) on the balance sheetB. it overstates the future amount of receivables expected to be collected (future cash inflow) on the balance sheetC. it is the GAAP preferred method for recording uncollectible accountsD. it allows for earnings management when estimating uncollectible accounts2. When capitalizing interest on self-constructed assetsA. only the actual interest on debt and equity securities can be capitalizedB. only the avoidable interest on debt and equity securities can be capitalizedC. only the lesser of the actual or avoidable interest can be capitalizedD. only the greater of the actual or avoidable interest can be capitalized 3. When exchanging a nonmonetary asset for another nonmonetary assetA. gains and losses should always be recognized on the exchange only if there is commercial substanceB. gains should only be recognized on the exchangeC. losses should only be recognized on the exchange if there is commercial substanceD. losses should always be recognized on the exchange4. There are three theoretical methods for the accounting of temporary investments. The FASB adopted the fair value method when accounting for securities classified as trading securities and available-for-sale securities. The difference between the accounting for unrealized holding gains and losses for these two securities is:A. classifying the unrealized holding gain/loss as other comprehensive income for trading securitiesB. classifying the unrealized holding gain/loss as other gains/losses on the income statement for available-for-sale securitiesC. classifying the unrealized holding gain loss as other comprehensive income for available-for sale securitiesD. classifying the unrealized holding gain/loss as other gains/losses on the income statement for both trading and available-for-sale securities5. One of the problems analyzing a company’s working capital position when LIFO is used to value the inventory isA. an understatement of the current ratioB. an overstatement of the amount of working capitalC. an understatement of the working capital and an overstatement of the current ratioD. an overstatement of both the current ratio and working capital6. When recording an asset retirement obligationA. an asset is recorded for the future value of the expected disposal cost of the long-term assetB. a liability is established at the present value of the expected disposal cost of the long-term assetC. both an asset and liability are recorded at the future value of the expected disposal cost of the long-term assetD. any future changes made to the initial amount of the recorded asset and liability are treated as an error correction7. When incurring subsequent costs (costs after the initial purchase) for assets correctly classified as property, plant, and equipment, these costs should be capitalized ifA. the costs increase the estimated salvage value of the assetB. the costs are incurred as part of routine maintenanceC. the costs increase the output of the assetD. the costs are material in dollar amount8. Ten years ago the King LeBron Company issued $10,000,000 of bonds payable that are coming due in the current year. They are currently classified as a long-term liability and their payment (extinguishment) will come from a bond sinking fund that is properly classified as an investment. The King LeBron Company shouldA. classify the bonds payable as a current liabilityB. classify the bond sinking fund as a contra-liability to the bonds payable accountC. classify the bond sinking fund as a cash equivalentD. not do anything and keep the bonds payable classified as a long-term liability9. When estimating the value of inventory on-hand for interim reporting purposesA. the gross profit method should be usedB. the retail inventory method should be usedC. the gross profit or the retail inventory methods can be usedD. a physical inventory is required under GAAP for interim reporting purposes10. Financial accounting (GAAP) does not allow the use of MACRS for calculating depreciation expense for financial reporting. The straight-line method of calculating depreciation expense is by far the most popular method. A likely reason for this isA. that since calculating depreciation expense is based on estimates anyway, we use straight-line as it is the easiest method to useB. straight-line does the best job at matching revenues and expenses (expense recognition)C. GAAP refers to the straight-line method as being the most systematic and rational allocation methodD. straight does a better job of approximating fair value of the asset with its book value
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