Question : 31. Managers frequently cite which of the following reason(s) for using : 1245710

31. Managers frequently cite which of the following reason(s) for using off-balance sheet financing? 
A. Some managers believe that it might lower the cost of borrowing.
B. Lower borrowing costs might result if lenders ignore off-balance-sheet financing.
C. Lower borrowing costs might result if lenders are unaware of off-balance sheet financing: because borrowers do not disclose it.
D. Off-balance-sheet financing might lead lenders to set interest rates for loans lower than the underlying risk levels warrant.
E. all of the above

32. The actual earnings from pension plan investments include  
A. interest, only.
B. interest and dividends, only.
C. interest, dividends, and realized changes in the fair value of plan investments, only.
D. interest, dividends, realized and unrealized changes in the fair value of plan investments.
E. interest, dividends, and unrealized changes in the fair value of plan investments, only.

33. When firms have obligations that do not meet the formal definition of a liability, U.S. GAAP require that firms 
A. disclose information about such obligations in notes to the financial statements.
B. highlight such arrangements in the Management Discussion and Analysis section.
C. have the auditor address such matters in a separate paragraph in the independent auditor’s report accompanying the financial statements.
D. do not mention the obligation because they are not valid liabilities and to do otherwise would mislead the readers of the financial statements.
E. none of the above.

34. The computation of the pension liability for a defined benefit plan uses actuarial estimates or actuarial assumptions of 
A. estimated interest rates.
B. estimated employee mortality, only.
C. estimated employee turnover, only.
D. estimated employee turnover, mortality, and interest rates.
E. actual employee turnover, mortality, and interest rates.

35. Firms frequently sign contracts promising to pay defined amounts in the future in return for future benefits. If the firm has not received past or current benefits, but will receive the benefits in the future, accounting treats the obligation as a(n)  _____ contract and typically _____. 
A. contingent; does recognize a liability
B. executory; does not recognize a liability
C. executory; does recognize a liability
D. contingent; does not recognize a liability
E. future; does recognize a liability

36. Sprinter Airlines (Sprinter) needs additional aircraft to expand internationally, and it could borrow the needed funds and purchase the aircraft. This arrangement places additional debt on the balance sheet. Instead, Sprinter signs an lease agreement in which it agrees to pay the owner of the aircraft certain amounts each year for 12 years. The aircraft has an estimated service life of 18 years. Sprinter paints its name on the aircraft, uses the aircraft in operations, and makes the required lease payments. Which of the following is/are true? 
A. Sprinter receives benefits when it uses the aircraft, not when it initially signs the lease.
B. Sprinter has future benefits, not past or current benefits.
C. Sprinter obtains financing for its flight equipment without showing a liability on the balance sheet.
D. Sprinter has entered into an operating lease that is an executory contract.
E. all of the above

37. Sprinter Airlines (Sprinter) needs additional aircraft to expand internationally, and it could borrow the needed funds and purchase the aircraft. This arrangement places additional debt on the balance sheet. Instead, Sprinter signs an lease agreement in which it agrees to pay the owner of the aircraft certain amounts each year for 12 years. The aircraft has an estimated service life of 18 years. Sprinter paints its name on the aircraft, uses the aircraft in operations, and makes the required lease payments. Which of the following is not true? 
A. Sprinter receives benefits when it uses the aircraft, not when it initially signs the lease.
B. Sprinter has future benefits, not past or current benefits.
C. Sprinter obtains financing for its flight equipment without showing a liability on the balance sheet.
D. Sprinter has entered into an operating lease that is an executory contract.
E. Sprinter has entered into an financing lease that is recorded as an asset purchase and financing transaction.

38. Universal Airlines (Universal) needs additional aircraft to expand internationally, and it could borrow the needed funds and purchase the aircraft. This arrangement places additional debt on the balance sheet. Instead, Universal signs an lease agreement in which it agrees to pay the owner of the aircraft certain amounts each year for 18 years. The aircraft has an estimated service life of 18 years. Universal paints its name on the aircraft, uses the aircraft in operations, and makes the required minimum lease payments that compensates the lessor for the cost of the aircraft and provides a reasonable return for the risk involved.  Which of the following is true? 
A. Universal has entered into a contingent lease and does not show a liability on the balance sheet.
B. Universal recognizes lease expense on a straight-line basis during the 18 year period.
C. Universal obtains financing for its flight equipment without showing a liability on the balance sheet.
D. Universal has entered into an operating lease and recognizes a lease liability on its balance sheet.
E. Universal has entered into a capital lease and recognizes a lease liability on its balance sheet.

39. Robo Corporation

Robo Corporation entered into noncancelable, long-term material contracts with suppliers for the purchase of raw materials beginning in the calendar Year 4. These contracts amounted to $500,000 at December 31, Year 4, relating to raw materials with a market price of $575,000. This amount was considered material for Robo.

(CMA adapted, Dec 95 #16) Refer to the Robo Corporation example. Robo Corporation’s financial statements at December 31, Year 4, 
A. include a contingent liability of $500,000.
B. disclose the purchase commitment.
C. include a liability of $575,000.
D. do not mention this commitment.
E. none of the above.

40. Robo Corporation

Robo Corporation entered into noncancelable, long-term material contracts with suppliers for the purchase of raw materials beginning in the calendar Year 4. These contracts amounted to $500,000 at December 31, Year 4, relating to raw materials with a market price of $575,000. This amount was considered material for Robo.

(CMA adapted, Dec 95 #17) Refer to the Robo Corporation example. Assume the goods were received and the market price of the raw materials amounts to $450,000. Robo Corporation’s financial statements at December 31. Year 4, for this transaction should 
A. not mention this commitment.
B. reflect a liability of $500,000.
C. reflect a liability of $50,000.
D. reflect a liability of $450,000.
E. reflect a liability of $400,000.