1. Generally, a firm can choose different accounting methods for tax reporting purposes and for financial reporting purposes. An exception to this rule is when the firm

a. depreciates assets using double-declining balance depreciation
b. finances capital purchases using capital leases
c. costs inventory using net realizable value
d. costs inventory using LIFO cost flow assumption

2. Which of the following is not a generally recognized financial reporting objective?

a. accurate presentation
b. conservatism
c. profit minimization
d. income smoothing

3. Assuming that two firms use the same method of depreciation for tax reporting purposes, using alternative depreciation methods for financial reporting will have the least impact on the

a. balance sheet
b. income statement
c. statement of cash flows
d. statement of financial position

4. Conservatism implies that

a. assets and liabilities are minimized
b. liabilities are presented fairly
c. assets and cumulative reported earnings are maximized
d. assets and cumulative reported earnings are minimized

5. Which inventory cost flow assumption is usually required by federal income tax regulation if a company uses LIFO for financial reporting?

a. LIFO
b. FIFO
c. double-declining balance
d. ACRS

6. If a firm records an asset called "patent" on its balance sheet prepared in accordance with GAAP and amortizes that asset, an alert reader of the statement knows that

a. the firm has decided to capitalize rather than expense the internally developed patent
b. the firm was required to capitalize all internal costs related to patent development
c. the firm expects the internally developed patent to have a life greater than 1 year
d. the patent was purchased

7. First year amortization using the straight-line method as compared with the effective interest method is

a. greater
b. lesser
c. equal
d. cannot be determined from information provided

8. Generally accepted accounting principles require firms with predictable uncollectible accounts to use which method for recording bad debts?

a. allowance method
b. double-declining balance method
c. direct write-off method
d. relative sales value method

9. In general which type of lease will result in a greater amount of deductions over the entire life of the lease?

a. operating lease
b. capital lease
c. neither, they will yield the same total deductions
d. it depends on each specific lease transaction

10. Deferred taxes are created by

a. a firm's choice of different method of generally accepted accounting principles
b. a firm's choice of different methods of accounting principles for financial and tax reporting purposes
c. using tax accounting principles for tax reporting
d. using tax accounting principles for financial accounting

Copyright © 2003 South-Western. All Rights Reserved.