Carrying inventory at a value above its historical cost would most likely be permitted if:

A retail company is comparing different approaches to valuing inventory. The company has one product that it sells for $50. 

What is the value of ending inventory for the first quarter if the company uses a perpetual LIFO inventory valuation method?

ZP Corporation is a (hypothetical) multinational corporation headquartered in Japan that trades on numerous stock exchanges. ZP prepares its consolidated financial statements in accordance with US GAAP. Excerpts from ZP’s 2009 annual report are shown in Exhibits 1–3. 

What is the least likely reason why ZP may need to change its accounting policies regarding inventory at some point after 2009?

ZP Corporation is a (hypothetical) multinational corporation headquartered in Japan that trades on numerous stock exchanges. ZP prepares its consolidated financial statements in accordance with US GAAP. Excerpts from ZP’s 2009 annual report are shown in Exhibits 1–3. 

Inventory levels decreased from 2008 to 2009 for all of the following reasons except:

ZP Corporation is a (hypothetical) multinational corporation headquartered in Japan that trades on numerous stock exchanges. ZP prepares its consolidated financial statements in accordance with US GAAP. Excerpts from ZP’s 2009 annual report are shown in Exhibits 1–3. 

Note 2 indicates that, “Inventories valued on the LIFO basis totaled ¥94,578 million and ¥50,037 million at December 31, 2008 and 2009, respectively.” Based on this, the LIFO reserve should most likely:

A financial analyst is studying the income statement effect of two alternative depreciation methods for a recently acquired piece of equipment. She gathers the following information about the equipment’s expected production life and use: 

Compared with the units-of-production method of depreciation, if the company uses the straight-line method to depreciate the equipment, its net income in Year 1 will most likely be:

A company purchases equipment for $200,000 with a five-year useful life and salvage value of zero. It uses the double-declining balance method of depreciation for two years, then shifts to straight-line depreciation at the beginning of Year 3. Compared with annual depreciation expense under the double-declining balance method, the resulting annual depreciation expense in Year 4 is:

A potential advantage of leasing through a finance lease, compared with purchasing an asset, is most likely:

Melanie Hart, CFA, is a transportation analyst. Hart has been asked to write a research report on Altai Mountain Rail Company (AMRC). Like other companies in the railroad industry, AMRC’s operations are capital intensive, with significant investments in such long-lived tangible assets as property, plant, and equipment. In November of 2008, AMRC’s board of directors hired a new team to manage the company. In reviewing the company’s 2009 annual report, Hart is concerned about some of the accounting choices that the new management has made. These choices differ from those of the previous management and from common industry practice. Hart has highlighted the following statements from the company’s annual report:    Statement 1  “In 2009, AMRC spent significant amounts on track                replacement and similar improvements. AMRC expensed                rather than capitalized a significant proportion of these                expenditures.”    Statement 2  “AMRC uses the straight-line method of depreciation for both                financial and tax reporting purposes to account for plant and                equipment.”    Statement 3  “In 2009, AMRC recognized an impairment loss of €50 million                on a fleet of locomotives. The impairment loss was reported as                ‘other income’ in the income statement and reduced the                carrying amount of the assets on the balance sheet.”    Statement 4  “AMRC acquires the use of many of its assets, including a large                portion of its fleet of rail cars, under long-term lease contracts.                In 2009, AMRC acquired the use of equipment with a fair                value of €200 million under 20-year lease contracts. These                leases were classified as operating leases. Prior to 2009, most                of these lease contracts were classified as finance leases.” Exhibits 1 and 2 contain AMRC’s 2009 consolidated income statement and balance sheet. AMRC prepares its financial statements in accordance with International Financial Reporting Standards. 

Based on Exhibits 1 and 2, the best estimate of the average remaining useful life of the company’s plant and equipment at the end of 2009 is:

Melanie Hart, CFA, is a transportation analyst. Hart has been asked to write a research report on Altai Mountain Rail Company (AMRC). Like other companies in the railroad industry, AMRC’s operations are capital intensive, with significant investments in such long-lived tangible assets as property, plant, and equipment. In November of 2008, AMRC’s board of directors hired a new team to manage the company. In reviewing the company’s 2009 annual report, Hart is concerned about some of the accounting choices that the new management has made. These choices differ from those of the previous management and from common industry practice. Hart has highlighted the following statements from the company’s annual report:    Statement 1  “In 2009, AMRC spent significant amounts on track                replacement and similar improvements. AMRC expensed                rather than capitalized a significant proportion of these                expenditures.”    Statement 2  “AMRC uses the straight-line method of depreciation for both                financial and tax reporting purposes to account for plant and                equipment.”    Statement 3  “In 2009, AMRC recognized an impairment loss of €50 million                on a fleet of locomotives. The impairment loss was reported as                ‘other income’ in the income statement and reduced the                carrying amount of the assets on the balance sheet.”    Statement 4  “AMRC acquires the use of many of its assets, including a large                portion of its fleet of rail cars, under long-term lease contracts.                In 2009, AMRC acquired the use of equipment with a fair                value of €200 million under 20-year lease contracts. These                leases were classified as operating leases. Prior to 2009, most                of these lease contracts were classified as finance leases.” Exhibits 1 and 2 contain AMRC’s 2009 consolidated income statement and balance sheet. AMRC prepares its financial statements in accordance with International Financial Reporting Standards. 

With respect to Statement 4, if AMRC had used its old classification method for its leases instead of its new classification method, its 2009 total asset turnover ratio would most likely be:

A company receives advance payments from customers that are immediately taxable but will not be recognized for accounting purposes until the company fulfills its obligation. The company will most likely record:

The company’s effective tax rate was highest in: 

Zimt AG presents its financial statements in accordance with US GAAP. In 2007, Zimt discloses a valuation allowance of $1,101 against total deferred tax assets of $19,201. In 2006, Zimt disclosed a valuation allowance of $1,325 against total deferred tax assets of $17,325. The change in the valuation allowance most likely indicates that Zimt’s:

The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows ($ thousands): 

A reduction in the statutory tax rate would most likely benefit the company’s:

The tax effects of temporary differences that give rise to deferred tax assets and liabilities are as follows ($ thousands): 

Compared to the provision for income taxes in 2007, the company’s cash tax payments were:

A company’s provision for income taxes resulted in effective tax rates attributable to loss from continuing operations before cumulative effect of change in accounting principles that varied from the statutory federal income tax rate of 34 percent, as summarized in the table below. 

The $357,000 adjustment in 2007 most likely resulted in:  

A company’s provision for income taxes resulted in effective tax rates attributable to loss from continuing operations before cumulative effect of change in accounting principles that varied from the statutory federal income tax rate of 34 percent, as summarized in the table below. 

Over the three years presented, changes in the valuation allowance for deferred tax assets were most likely indicative of:

Midland Brands issues three-year bonds dated 1 January 2015 with a face value of $5,000,000. The market interest rate on bonds of comparable risk and term is 3%. If the bonds pay 2.5% annually on 31 December, bonds payable when issued are most likely reported as closest to:

A company issues €10,000,000 face value of 10-year bonds dated 1 January 2015 when the market interest rate on bonds of comparable risk and terms is 6%. The bonds pay 7% interest annually on 31 December. Based on the effective interest rate method, the interest expense on 31 December 2015 is closest to:

Lesp Industries issues five-year bonds dated 1 January 2015 with a face value of $2,000, 000 and 3% coupon rate paid annually on 31 December. The market interest rate on bonds of comparable risk and term is 4%. The sales proceeds of the bonds are $1,910,964. Under the effective interest rate method, the interest expense in 2017 is closest to:

Innovative Inventions, Inc. needs to raise €10 million. If the company chooses to issue zero-coupon bonds, its debt-to-equity ratio will most likely:

Debt covenants are least likely to place restrictions on the issuer’s ability to:

A lessor will record interest income if a lease is classified as:

In contrast to earnings quality, financial reporting quality most likely pertains to:

A high-quality financial report may reflect:

Which of the following is most likely to be considered a potential benefit of accounting conservatism?

A company is experiencing a period of strong financial performance. In order to increase the likelihood of exceeding analysts’ earnings forecasts in the next reporting period, the company would most likely undertake accounting choices that:

Which of the following situations represents a motivation, rather than an opportunity, to issue low-quality financial reports?

Projecting profit margins into the future on the basis of past results would be most reliable when the company:

An analyst is evaluating the balance sheet of a US company that uses last in, first out (LIFO) accounting for inventory. The analyst collects the following data: 

After adjusting the amounts to convert to the first in, first out (FIFO) method, inventory at 31 December 2006 would be closest to:

Which of the following is most likely included in a firm’s ending inventory?

A firm acquires an asset for $120,000 with a 4-year useful life and no salvage value. The asset will generate $50,000 of cash flow for all four years. The tax rate is 40% each year. The firm will depreciate the asset over three years on a straight-line (SL) basis for tax purposes and over four years on a SL basis for financial reporting purposes. Taxes payable in year 1 are:

A firm acquires an asset for $120,000 with a 4-year useful life and no salvage value. The asset will generate $50,000 of cash flow for all four years. The tax rate is 40% each year. The firm will depreciate the asset over three years on a straight-line (SL) basis for tax purposes and over four years on a SL basis for financial reporting purposes. Income tax expense in year 4 is:

A net pension asset or liability can be associated with: