1. Which kind of dividends typically pay dividends with additional shares of the corporation's stock?
   A. stock dividend
   B. liquidating dividend
   C. scrip dividend
   D. property dividend

A. Stock Dividend

2. Which of the following is FALSE?
   A. Firms do not need to recognize liabilities for product financing arrangements if the arrangement requires the sponsoring firm to purchase inventory, or substantially identical inventory, or processed goods of which inventory is a component at specified prices.
   B. If an analysts capitalizes operating leases on a proforma basis, then debt to equity and times interest earned ratios will deteriorate.
   C. If a contractual arrangement requires the sponsoring firm to repay any of the funds provided by other parties regardless of the outcome of the R&D, then the sponsoring firm must recognize a liability.
   D. For a special purpose entity (SPE) to avoid consolidation, then effective control must not reside primarily in the firm setting up the SPE.

A. Firms do not need to recognize liabilities for product financing arrangements if the arrangement requires the sponsoring firm to purchase inventory, or substantially identical inventory, or processed goods of which inventory is a component at specified prices.

3. GAAP requires that companies disclose debt principal repayment requirements for the next ____ years plus all other debt principal repayments thereafter

5

4. On January 1, 2012, Porter Corporation signed a five-year noncancelable lease for certain machinery. The terms of the lease called for: 1)Porter to make annual payments of $60,000 at the end of each year (starting on Dec. 31, 2012) for five years. Porter must return the equipment to the lessor end of this period. 2)The machinery has an estimated useful life of 6 years and no expected salvage value. 3)Porter uses the straight-line method of depreciation for all of its fixed assets. 4)Porter's incremental borrowing rate is 8%. 5)The fair value of the asset at January 1, 2012 is $275,000. At January 1, 2012, Porter should record an asset and liability with respect to the equipment lease equal to

$239,563

5. Operating Lease Commitments at the end of 2012 Year Reported Lease Commitments 2013 $148,239 2014 $252,800 2015 $278,327 2016 $279,210 2017 $285,452 Beyond 2017 $2,471,600 Using the information provided by Santa Corporation calculate the present value of the operating leases using an 8% interest rate.

$2,155,840

6. Which of the following is FALSE?
   A. The primary benefit of restricted stock vs. stock options is that a stock option may expire worthless, but restricted stock almost always has some value.
   B. A stock option that is underwater today may still have value in the future since the market price of the stock may still exceed the strike price of the option at the exercise date.
   C. GAAP does not require firms to recognize liability obligations under mutually unexecuted contracts.
   D. Employee stock options are now accounted for using the intrinsic value method, whereby the difference between the market price of the stock and the strike price of the option at the date of grant are recorded as a current period expense

D. Employee stock options are now accounted for using the intrinsic value method, whereby the difference between the market price of the stock and the strike price of the option at the date of grant are recorded as a current period expense

7. Under U.S. GAAP, which of the following items would require a lessee to classify a lease of equipment as a capital lease?
   A. The present value of the contractual minimum lease payments is 75% of the fair value of the leased property.
   B. The lease term is 90% of the estimated economic life of the lease property.
   C. There is no transfer of ownership to the lessee at the end of the lease term.
   D. The lease does not contain a bargain purchase option.

B. The lease term is 90% of the estimated economic life of the lease property.

8. Which of the following is the date on which a company incurs a legal liability to distribute the dividend to owners of the stock?
   A. date of payment
   B. commitment date
   C. date of record
   D. date of declaration

D. date of declaration