1. Which of the following statements characterizes an operating lease?A. The lessee records depreciation and interest.B. The lessee records the lease obligation related to the leased asset.C. The lessor transfers the title of the leased property to the lessee for the duration of the lease term.D. The lessor records depreciation and lease revenue.2. Which type of contract is unique in that it protects the owner against unfavorable movements in the prices or rates while allowing the owner to benefit from favorable movements?A. Interest rate swapB. Forward contractC. Futures contractD. Option3. Cowboy Corporation reported depreciation of $450,000 on its 2002 tax return. However, in its 2002 income statement, Cowboy reported depreciation of $300,000, as well as $30,000 interest revenue on tax-free bonds. The difference in depreciation is only a temporary difference, and it will reverse equally over the next three years. Cowboy?s enacted income tax rates are as follows:2002 35%2003 30%2004 25%2005 20%What amount should be included in the deferred income tax liability in Cowboy?s December 31, 2002, balance sheet?A. $30,000B. $37,500C. $45,000D. $52,5004. Stockton, Inc. leased machinery with a fair value of $250,000 from Layton Machine Co. on December 31, 2001. The contract is a six-year noncancellable lease with an implicit interest rate of 10 percent. The lease requires annual payments of $50,000 beginning December 31, 2001. Stockton appropriately accounted for the lease as a capital lease. Stockton?s incremental borrowing rate is 12 percent. Assuming the present value of an annuity due of 1 for 6 years at 10 percent is 4.7908 and the present value of an annuity due of 1 for 6 years at 12 percent is 4.6048, what is the lease liability that Stockton should report on the balance sheet at December 31, 2001?A. $189,540B. $200,000C. $230,240D. $239,5405. The books of the Tracker Company for the year ended December 31, 2002, showed pretax income of $360,000. In computing the taxable income for federal income tax purposes, the following timing differences were taken into account:Depreciation deducted for tax purposes in excess of depreciation recorded on the books, $16,000Income from installment sale reportable for tax purposes in excess of income recognized on the books, $12,000What should Tracker record as its current federal income tax liability at December 31, 2002, assuming a corporate income tax rate of 30 percent?A. $99,600B. $103,200C. $106,800D. $108,0006. The president of Technorthern signed a contract for a large purchase of a particular software program. She then heard rumors that the next generation of that software will be available much sooner than expected. The uncertain future market value of that inventory is a(n)A. price riskB. credit riskC. interest rate riskD. exchange rate risk7. Baxter Company leased equipment to Fritz Inc. on January 1, 2002. The lease is for an eight-year period expiring December 31, 2009. The first of eight equal annual payments of $900,000 was made on January 1, 2002. Baxter had purchased the equipment on December 29, 2001 for $4,800,000. The lease is appropriately accounted for as a sales-type lease by Baxter. Assume that the present value at January 1, 2002, of all rent payments over the lease term discounted at a 10 percent interest rate was $5,280,000. What amount of interest revenue should Baxter record in 2003 (the second year of the lease period) as a result of the lease?A. $490,000B. $480,000C. $438,000D. $391,8008. Wright, Inc. has an incentive compensation plan under which the sales manager receives a bonus equal to 10 percent of the company?s income after deductions for bonus and income taxes. Income before bonus and income taxes is $400,000. The effective income tax rate is 30 percent. How much is the bonus (rounded to the nearest dollar)?A. $80,000B. $30,108C. $28,000D. $26,1689. Slice Company manufactures equipment that they sell or lease. On December 31, 2002, Slice leased equipment to Hook Company for a five-year period after which the ownership of the leased asset will be transferred to Hook. The lease calls for equal annual payments of $50,000, due on December 31 of each year. The first payment was made on December 31, 2001. The normal sales price of the equipment is $220,000, and cost is $176,000. For the year ended December 31, 2002, what amount of income should Slice report from the lease transaction?A. $10,000B. $30,000C. $44,000D. $74,00010. Frey Corporation?s income statement for the year ended December 31, 2002, shows pretax income of $1,000,000. The following items are treated differently on the tax return and in the accounting records: Tax Return Accounting RecordsRent Income $70,000 $120,000Depreciation expense 280,000 220,000Premiums on officer?s life insurance - 90,000Assume that Frey?s tax rate for 2002 is 30 percent. What is the amount of income tax payable for 2001?A. $360,000B. $320,000C. $294,000D. $267,00011. Blaine Inc. shows the following data relating to its pension plan for 2002:Amortization of unrecognized net loss $16,000Amortization of unrecognized prior service cost 28,000Expected return on plan assets 32,000Actual return on plan assets 36,000Interest on projected benefit obligation 70,000Service cost 160,000What amount should Blaine report for pension cost in 2002?A. $206,000B. $238,000C. $242,000D. $270,00012. On December 1, 2002, Blake Inc. signed an operating lease for a warehouse for 10 years at $24,000 per year. Upon execution of the lease, Blake paid $48,000 covering rent for the first two years. How much should be shown in Blake?s income statement for the year ended December 31, 2002, as rent expense?A. $0B. $2,000C. $24,000D. $48,00013. Which of the following payroll taxes aren?t paid by the employer?A. FICA taxesB. Federal unemployment taxesC. State unemployment taxesD. State income taxes14. The following information relates to the defined benefit pension plan of the McDonald Company for the year ended December 31, 2002:Projected benefit obligation, January 1 $4,600,000Projected benefit obligation, December 31 4,729,000Fair value of plan assets, January 1 5,035,000Fair value of plan assets, December 31 5,565,000Expected return on plan assets 450,000Amortization of deferred gain 32,500Employer contributions 425,000Benefits paid to retirees 390,000Settlement rate 10%The actual return on plan assets for the year isA. $105,000B. $495,000C. $503,500D. $530,00015. Which of the following statements characterizes lessor accounting for residual values?A. Guaranteed residual values are included in the gross investment amount, but unguaranteed residual values are excluded from the gross investment.B. Unguaranteed residual values are included in the gross investment amount, but guaranteed residual values are excluded from the gross investment.C. Guaranteed residual values and unguaranteed residual values are excluded from the gross investment.D. Guaranteed residual values and unguaranteed residual values are included in the gross investment.16. For three consecutive years, 1999-2001, Twin Corporation has reported income before taxes of $100,000 for both financial reporting purposes and tax reporting purposes. During this time, Twin?s income tax rates were as follows:1999 20%2000 25%2001 30%In 2002, Twin?s tax rate changed to 35 percent. Also in 2002, the company reported a loss for both financial reporting and tax reporting purposes of $100,000. Assuming the company uses the carryback provisions, the amount Twin?s should report as an income tax refund receivable in 2002 is:A. $20,000B. $25,000C. $30,000D. $35,00017. Northwest Company determined that it has an obligation relating to employees? rights to receive compensation for future absences attributable to employees? services already rendered. The obligation relates to rights that vest, and payment of the compensation is probable. The amounts of Northwest?s obligations as of December 31 are reasonably estimated as follows:Vacation pay $110,000Sick pay 80,000In its December 31 balance sheet, what amount should Northwest report as its liability of compensated absences?A. $0B. $80,000C. $110,000D. $190,00018. During the first week of January, Sam Jones earned $200. Assume that FICA taxes are 7.65 percent of wages up to $50,000, state unemployment tax is 5.0 percent of wages up to $13,000, and federal unemployment tax is 0.8 percent of wages up to $13,000. Assume that Sam has voluntary withholdings of $10 (in addition to taxes) and that federal and state income tax withholdings are $18 and $6, respectively. What is the employer?s payroll tax expense for the week, assuming that Sam Jones is the only employee?A. $6.32B. $10.00C. $19.05D. $26.9019. The following information is taken from Blackhawk Corporation?s 2002 financial records:Pretax accounting income $1,500,000Excess tax depreciation (45,000)Taxable income $1,455,000Assume the taxable temporary difference was created entirely in 2002 and will reverse in equal net taxable amounts in each of the next three years. If tax rates are 40 percent in 2002, 35 percent in 2003, 35 percent in 2004, and 30 percent in 2005, then the total deferred tax liability Blackhawk should report on its December 31, 2002 balance sheet is:A. $13,500B. $15,000C. $15,750D. $18,00020. If the actual return on pension fund assets exceeds the expected return for the period, then difference isA. a deferred lossB. a deferred gainC. recognized as a loss in the current periodD. recognized as a gain in the current period