FRA Test - TE 2

A company has a building with a net carrying amount of $100,000 and a tax base of $120,000. The tax rate was 20% when the asset was purchased, but it is scheduled to be reduced to 17% this year. Which of the following will the company most likely report related to this building?

• A. Deferred tax asset: $4,000
• B. Deferred tax asset: $3,400
• C. Deferred tax liability: $600

Private contracts, such as bank loan agreements, are most likely to provide an effective disciplinary mechanism to insure high financial reporting quality because:

• A. loan covenants require the firm to meet specific financial ratios in order to renew the loan.
• B. lenders monitor managers and pay close attention to the firm’s financial reports.
• C. loan covenants may allow the lender to recover all or part of their investment if certain financial conditions are triggered.

Assume the companies use a periodic inventory system.<br /><br />Compared to using the weighted average cost method to account for inventory, during a period in which prices are generally rising, the current ratio of a company using the FIFO method would most likely be:

• A. lower.
• B. higher.
• C. dependent upon the interaction with accounts payable.

One of the notable differences between IFRS and US GAAP when dealing with income tax is best illustrated by the fundamental treatment of:

• A. non-deductible goodwill.
• B. the revaluation of property, plant, and equipment.
• C. temporary differences between the carrying amount and tax base of assets and liabilities.

A company has recorded an expense for interest costs that have not yet been paid as of the balance sheet date. On the balance sheet, they are best reported as:

• A. deferred expenses.
• B. accounts payable.
• C. accrued expenses.

• A. essentially unchanged.
• B. higher by 2.5%.
• C. lower by 2.3%.

An example of a contra asset account is:

• A. depreciation expense.
• B. sales returns and allowances.
• C. allowance for doubtful accounts.

In a period of declining inventory unit costs and constant or increasing inventory quantities, which inventory method is most likely to result in a higher debt-to-equity ratio?

• A. LIFO
• B. FIFO
• C. Weighted average cost

• A. 14.0.
• B. 16.0.
• C. 13.0.

• A. ($217,000).
• B. ($329,000).
• C. ($556,000).