Under U.S. GAAP what is the most likely effect of the reversal of a valuation allowan

wance for a deferred tax asset under U.S. GAAP (generally accepted accounting principles)? A(n):

A. reduction in tax rates.

B. decrease in interest rates.

C. increase in the carry forward periods available under the tax law.

capitalized €2 million of development costs during the year. These costs were fully deductible immediately for tax purposes, but the company is depreciating them over two years for financial reporting purposes. The company has a long history of profitability which is expected to continue. Which is the most appropriate way for an analyst to incorporate the differential tax treatment in his analysis? He should include it in:

A. liabilities when calculating the company’s current ratio.

B. equity when calculating the company’s return on equity ratio.

C. liabilities when calculating the company’s debt-to-equity ratio.

The following information is available about a company:

The company’s 2012 income tax expense (in thousands) is closest to:

A. $1,000.

B. $1,050.

C. $1,250.

fference of $12,000 is attributed to warranty expenses. The statutory tax rate is 30% and the company reports income taxes payable of $18,000 on its balance sheet. What is the amount of income tax expense that Ady Auto Group should report on its income statement?

A. $6,000.

B. $14,400.

C. 21,600.

any’s financial statements and ratios:

A.The issuance of convertible bonds by a company results in a decrease in both its debt-to-equity and its interest coverage ratios.

B.The conversion of convertible bonds into common equity results in an increase in the company’s debt-to-equity ratio and an increase in the interest coverage ratio.

C.When there is a conversion of convertible debt into common equity, even if the market price exceeds the conversion price, no gain or loss may be reported on the financial statements.

A company issues $10 million in 8% annual-pay, 5-year bonds, when the market rate is 8.25%.the initial balance sheet liability and liability one year from the date of issue are closest to:

FRS show equal pension liabilities, it is most likely that:

A.both firms’ defined contribution plans are underfunded.

B.the funded status of the U.S.GAAP firm’s pension is equal to its pension liability.

C.the IFRS firm’s pension is underfunded by a greater amount than the U.S.GAAP firm’s pension.

cial statements is least accurate?

A.If the present value of the payments on a finance lease is greater than the carrying value of the asset, the lease is a sales-type lease on the books of the lessor.

B.In a direct financing lease, the lessor recognizes gross profit at the lease inception, while in a sales-type lease it does not.

C.To be a finance lease for the lessor, collectability must be reasonably certain and the lessor must have substantially completed performance.

ncome (earnings before interest and taxes) and net income in the first year?

A.Both will be lower.

B.Both will be higher.

C.One will be lower and one will be higher.

For the lessee, during the later years of a finance lease:

A.the debt-to-equity ratio will increase compared to the initial years.

B.a higher net profit (margin) will be obtained versus an operating lease.

C.a high asset turnover ratio will be obtained versus the operating lease.