1. Berful Industries, a US corporation using US GAAP accounting standards, asks your advice in preparing its year-end financial statements. Indicate your answer by checking the appropriate line next to your selected answer.

1. Berful is going to select straight-line depreciation for the new assets it acquires this year instead of the sum-of-the-years-digits method. Does this increase net income? Yes _____ No _____

2. Berful has a machine that has gold electrical connectors—the price of gold has risen so much that the fair market value of the machine has risen dramatically. Does this increase in fair market value for the machine require Berful to write up the value of the machine in its accounts and increase depreciation expense associated with the machine? Yes _____ No _____

3. Berful plans to sell treasury stock at a gain this year. Does this gain on the sale of treasury stock increase net income? Yes _____ No _____

4. Are Berful’s liabilities required to be valued at the lower-of-cost-or-market-value? Yes _____ No _____

5. Berful would like to report as revenue the manufacturer’s list price for goods it makes and sells, although it often cannot sell them for a price this high. Is this acceptable? Yes _____ No _____

6. Berful plans to issue new common shares this year at a price above par value. Increases net income? Yes _____ No _____

7. Berful plans to change from LIFO to FIFO in measuring the cost of its ending inventory and cost of goods sold, in a period of rising prices. Does this increase net income? Yes _____ No _____

8. Berful has used the direct write-off method to account for bad debts, but must change to the allowance method, in a year in which it has no write-offs, but expects to discover next year that some of the current year sales are uncollectible. Does this change increase net income?

Yes _____ No _____

1. Berful wishes to accelerate the timing of the recognition of revenue by collecting cash in advance of performing services or delivering goods. Does this increase net income? Yes _____ No _____

10. Berful is planning to sell land it has owned for many years, at a loss of $50,000. Does this affect net income in the year of the sale? Yes _____ No _____

11. Berful is considering purchasing a machine, but is concerned that the delivery charges will drive down its reported profit in the year of purchase. Will these costs decrease net income in the year of purchase? Yes _____ No _____

12. Berful wants to keep its current ratio high, and classifies compensating balance checking accounts as cash. Is this properly reported as cash? Yes _____ No _____

13. Berful is planning to treat as part of the cost its truck repairs and maintenance costs incurred, spreading the income statement effect over several years as depreciation expense. Is this appropriate? Yes _____ No _____

14. Berful plans to undertake a large research and development project this year, planning on treating as an asset the cost of the R & D activity. Is this correct? Yes _____ No _____

Answer rating: 100% (QA)

Berful is going to select straightline depreciation for the new assets it acquires this year instead of the sumoftheyearsdigits method Does this incre... View the full answer