1. Often cited reasons for using off?balance sheet financing include that this accounting technique

a. lowers the cost of borrowing and is inexpensive
b. lowers the cost of borrowing because borrowers already provide the correct information for reporting purposes
c. lowers the cost of borrowing and avoids violation of debt covenants
d. simplifies contracts and lowers payments

2. Ford Manufacturing signed a 3-year contract for the use of certain manufacturing equipment with an estimated life of three years. Ford cannot cancel the contract. What entry is made to record the contract?

a. Rent expense
         Rent payable
b. Manufacturing equipment
         Rent payable
c. Manufacturing equipment leasehold
         Rent payable
d. Manufacturing equipment leasehold
         Present value of lease obligation

3. (CMA adapted, Dec 95 #6) Careful reading of an annual report will reveal that off-balance sheet debt includes

a. amounts due in future years under operating leases
b. transfers of accounts receivable without recourse
c. premium on long-term debt
d. current portion of long-term debt

4. (CMA adapted, Dec 95 #17) Assume the goods were received and the market price of the raw materials amounts to $450,000. GKC Corporation's financial statements at December 31. Year 4, for this transaction should

a. not mention this commitment
b. reflect a liability of $500,000
c. reflect a liability of $50,000
d. reflect a liability of $450,000

5. (CMA adapted, Dec 92 #10) There are many similarities between lessee and lessor accounting for the capitalization of leases. Which one of the following is a criterion for the capitalization of a lease by a lessee?

a. The lease transfers ownership of the property to the lessee by the end of the lease term.
b. The lease term is at least 90% of the remaining life of the asset at the beginning of the lease.
c. The present value of the minimum lease payments is 75% or more of the fair market value of the leased asset.
d. Future costs are reasonably predictable.

6. (CMA adapted, Jun 96 #9) Which one of the following temporary differences will result in a deferred tax asset?

a. Use of the straight-line depreciation method for financial statement purposes and the Modified Accelerated Cost Recovery System (MACRS) for income tax purposes.
b. Installment sale profits accounted for on the accrual basis for financial statement purposes and on a cash basis for income tax purposes.
c. Advance rental receipts accounted for on the accrual basis for financial statement purposes and on a cash basis for tax purposes.
d. Investment gains accounted for under the equity method for financial statement purposes and under the cost method for income tax purposes.
e. Prepaid expenses accounted for on the accrual basis for financial statement purposes and on a cash basis for income tax purposes.

7. On its December 31, Year 5 balance sheet, Twack Corp. reported a deferred tax asset of $10,000. Its pretax financial income was $500,000 for the year ended December 31, Year 6. Taxable income for the year was $350,000; the difference is due to temporary differences totaling $100,000 and permanent differences of $50,000. Assuming an effective tax rate of 30% for the current year and all future years, what amount should Twack report as deferred income tax expense in its December 31, Year 6 income statement?

a. $20,000
b. $30,000
c. $40,000
d. $105,000

8. Which of the following is an example of a type of pension plan that an employer might provide?

a. defined benefit plan
b. defined contribution plan
c. profit-sharing plan
d. all of the above

9. Changes in fair value of a cash-flow hedge are included:

a. in current earnings
b. in other comprehensive income
c. in gross profit
d. in revenue

10. Which of the following can be a counterparty in a derivative transaction?

a. investment bank
b. commercial bank
c. major supplier
d. all of the above

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