1. Ignore taxes for this problem. Assume an acquisition was made using the acquisition method. The buyer established a $10 million acquisition reserve for unsettled lawsuit related to the target company. In the event that the lawsuit is ultimately settled for $8 million, then:

The buyer would charge $8 million to the reserve. Net income for the year would be increased by $2 million.

2. Under which of the following scenarios would an entity NOT be classified as a variable interest entity?

The total equity investment at risk is sufficient to permit the variable interest entity to finance its activities without additional subordinated financial support from other parties.

3. Which of the following is not a difficulty in determining current market values when determining the value of fixed assets?

Our current accounting model is not equipped to handle changes in market values.

4. All of the following statements are true regarding accounting for software development costs except:

Firms must capitalize as incurred all costs incurred internally in developing computer software.

5. The term used to describe the amount of a company's annual interest cost that should be capitalized is known as:

avoidable interest

6. When a firm sells a trading security, it recognizes

the difference between the selling price and the book value as a gain or loss in measuring net income.