1. The method to allocate income taxes has been a controversial area of accounting. When the FASB issued SFAS 96 they ultimately settled on the use of the
A. deferred method
B. net-of-tax method
C. asset-liability method
D. discounting method

2. From the viewpoint of the lessee, operating leases are considered to be a form of
A. off-balance sheet financing
B. being able to maintain equity interest in the leased property
C. increasing long-term debt on the balance sheet
D. increasing short-term debt on the balance sheet

3. When recording the liability under a capital lease, the total lease payments should be classified based on when the obligation is to be paid. For a 10-year lease starting today with monthly payments that are discounted as a present value of an annuity due, this would require recording
A. a current and long-term liability
B. only a current liability
C. only a long-term liability
D. no liability as it is a capital lease

4. One of the conflicting areas of accounting theory and accounting practice is the treatment of bond issue costs. According to The FASB ASC (835-30-45-3) “Issue costs shall be reported in the balance sheet as deferred charges.” However SFAC 6 specifically states that these issue costs are not an asset. SFAC 6 states that bond issue costs can be treated as
A. a contra-equity account
B. other comprehensive income
C. an expense
D. reduction of the effective interest rate when computing bond interest expense

5. The accounting for contingencies is dependent on the likelihood of occurrence. When estimating a gain contingency it will be recorded (journalized) if the likelihood is:
A. probable
B. reasonably possible
C. remote
D. gain contingencies are usually not recorded

6. If the Internal Revenue Code prohibits the deduction of an expense when computing taxable income, an expense that is allowable under GAAP, a _____________________ difference will arise.
A. temporary
B. permanent
D. timing

7. The use of a valuation (allowance) account to reduce deferred tax assets is required when the “more-likely-than-not” criteria is met. The purpose of this is to reduce and report the deferred tax assets at its
A. discounted cash flow amount
B. present value
C. expected realizable value
D. compounded cash flow amount

8. The criteria for a capital lease are met by the lessee, but not the lessor. When this occurs the lessor will record
A. a sales-type lease
B. a direct financing lease
C. a capital lease
D. an operating lease

9. The GAAP preferable method for calculating interest expense, and amortizing a bond discount and a bond premium for bonds payable and a long-term note payable issued at a discount or premium is
Bond Payable Long-Term Note Payable
A. straight-line effective interest
B. effective interest straight-line
C. straight-line straight-line
D. effective interest effective interest

10. When a company issues mandatorily redeemable preferred stock and pays cash dividends on such stock, the dividends are recorded as a debit to
A. a contra-equity account
B. an expense account
C. paid-in-capital, redeemable preferred stock
D. retained earnings