Continuous deficits in retained earnings is an indication of a business heading into bankruptcy. True or False
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Continuous deficits in
True or False
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- An example of a Type I subsequent event would be A. a sudden change in senior management after the financial statement date B. a filing with the Securities and Exchange Commission (SEC) of an amended form 10K after the financial statement date C. the bankruptcy of a client’s customer after year-end as a result of poor financial condition that existed as of the balance sheet date D. the bankruptcy of a client’s customer after year-end as a result of poor financial condition that existed after the balance sheet dateA Corporation's accounting statement of affairs shows a recovery percentage of 120%. The rate of recovery means that Group of answer choices a.Secured creditors will receive an amount in excess of the book value of their claims b.Unsecured creditors will receive an amount in excess of the book value of their claims c.Stockholders may expect some returns on their interests d.An error was made in the preparation of the statement2. Which of the following statement is correct about the statement of affairs? I. Net free assets are the excess of liquidation value of assets pledged to fully secured creditors over the amount of fully secured liabilities plus free assets less unsecured liabilities with priority. II. The estimated deficiency to unsecured creditors is total unsecured liabilities less total Net free assets III.Total unsecured liabilities includes unsecured liability with priority [A] I only [B] I and II only [C] II and III only [D] I, II and III 3. S1: For a joint venture, rights pertains to the rights and obligations associated with individual assets and liabilities, whereas with a joint the right operation, the rights and obligations pertains to the net assets. S2: Where the joint operators have designed the joint arrangement so that its activities primarily aim to provide the parties with an output it will be classified as joint venture. [A]Both statements are correct [B]Both statements are…
- When a firm writes bad debt under the allowance method of accounting for bad debtsA company fails to record accrued wages for the current year. Which of the following statement is true? O Retained earnings for the current year is overstated. O Net income for the current year is correct. O Retained earnings for the current year is understated. O Net income for the current year is understated.Which of the following is FALSE regarding the financial statements?
- 13. When the estimate used for bad debt expense is changed, bad debt expense for all past periods must be recalculated. there is no change in the amount of bad debt expense recorded for future years. bad debt expense for current and future years is affected. The company must change its write-off policy as well. 14. Which of the following methods of determining bad debt expense does not generally (assuming materiality) provide a level of matching of expense and revenue that is acceptable following GAAP? Debiting bad debt expense with a percentage of sales under the allowance method. Debiting bad debt expense as accounts are written off as uncollectible. Debiting bad debt expense with an amount derived from aging accounts receivable under the allowance method. Debiting bad debt expense with a percentage of accounts receivable under the allowance method.4.Below are various states of financial distress: a. b. What is the order of increasing gravity that analysts typically consider when assessing credit risk and bankruptcy risk according to a continuum of financial distress? c. d. Problem 3 1. defaulting on a principal payment on debt 2. restructuring debt 3. liquidating a firm 4. filing for bankruptcy 5. failing to make a required interest payment on time 5, 1, 2, 3, 4 5, 2, 1, 4, 3 1, 5, 2, 4, 3 1,5, 2, 3, 4 ISuppose an accountant discovers that the company holds substantial amounts of inventory that are now obsolete and worthless. Should the accountant report the truth, write off the inventory as an asset, and take a loss on obsolete inventory in earnings? Suppose the accountant also knows that the company is already in distress. Should the accountant seek ways to avoid or delay recognizing inventory losses that will cause the company to report lower earnings and thereby experience a drop in stock price and potential bankruptcy? What if the accountant knows the company is growing quickly and generating healthy profits?
- Misappropriation of assets: Select one: a. causes harm to stockholders because the assets are no longer available to their rightful owners b. causes the financial statements to be misstated since the misappropriation usually involves material amounts c. is generally committed by company management d. harms the users of the financial statements by providing them incorrect financial data for their decision makingWhat is the relationship between current liabilities and a company's operating cycle? Select one: Current liabilities can't exceed the amount incurred in one operating cycle. Liquidation of current liabilities is reasonably expected within the company's operating cycle (or one year if less). There is no relationship between the two. Current liabilities are the result of operating transactions.