Four Objective Accounting and Auditing Questions
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3. Sprite Co. reports income of $300,000 from continuing operations before income taxes and a before-tax extraordinary loss of $80,000. All income is subject to a 30% tax rate. In the year's income statement, Sprite Co. would show the following line-item amounts for income tax expense and net income:
$66,000 and $210,000
$90,000 and $154,000
$90,000 and $276,000
$66,000 and $220,000
Land was acquired in 2006 for a future building site at a cost of $40,000. The assessed valuation for tax purposes is $27,000, a qualified appraiser placed its value at $48,000, and a recent firm offer for the land was for a cash payment of $46,000. The land should be reported in the financial statements at:
$40,000.
$27,000.
$46,000.
$48,000.
12. The FASB's conceptual framework's primary qualitative characteristics of accounting information include:
Historical cost.
Reliability.
Realization.
Full disclosure.
13. The assumption that in the absence of contrary information a business entity will continue indefinitely is the:
Periodicity assumption.
Entity assumption.
Going concern assumption.
Historical cost assumption.
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Solution Summary
The solution provides the answers to the four multiple choice questions including a sentence or two in explanation.
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3. The net amounts are 300,000 - 80,000 = 220,000 - 30% for income tax = 154,000. The 90,000 is calculated as 300,000 x 30%. The tax savings generated by the extraordinary loss is netted with the loss itself. Effectively, the 90,000 of income tax is that which is ...
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