Multiple Choice Answers

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(TCO 6) Yamaha Inc. hires a new chief financial officer and promises to pay him a lump-sum bonus 4 years after he joins the company. The new CFO insists that the company invest an amount of money at the beginning of each year in a 7% fixed rate investment fund to ensure that the bonus will be available. To determine the amount that must be invested each year, a computation must be made using the formula for
the future value of a deferred annuity.
the future value of an ordinary annuity.
the future value of an annuity due.
None of the above

(TCO 5) The Claxton Company manufactures children’s toys and also has a division that makes automobile parts. Due to a change in its strategic focus, the company sold the automobile parts division. The division qualifies as a component of the entity according to GAAP regarding disposal of long-lived assets. How should Claxton report the sale in its 2011 income statement?
Report it as an extraordinary item.
Report it as a discontinued operation, reported below income from continuing operations.
Report the income or loss from operations of the division in discontinued operations below continuing operations, and the gain or loss from disposal in continuing operations.
None of the above

(TCO 5) On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2012. The following additional facts pertain to the transaction:
The Footwear Division qualifies as a component of the entity according to GAAP regarding discontinued operations.
The book value of Footwear’s assets totaled $48 million on the date of the sale.
Footwear’s operating income was a pre-tax loss of $10 million in 2012.
Foxtrot’s income tax rate is 40%.
In the 2012 income statement for Foxtrot Co., it would report
$9.2 million.
$13.2 million.
$22 million.
$26 million.

(TCO 5) Todd Sweeney is an artist who sells his work under consignment. (He displays his work in local barbershops, and customers buy the work there.) Sweeney recently transferred a painting to a local barbershop. After Sweeney has transferred a painting to a barbershop, the painting
should be counted in Sweeney’s inventory until the barbershop sells it.
should be counted in the barbershop’s inventory, as they now possess it.
should be counted in either Sweeney’s or the barbershop’s inventory, depending on which incurred the cost of preparing the painting for display.
None of the above

(TCO 6) Reba wishes to know how much money would be in her savings account if she deposits a given sum in an account and leaves it there at 6% interest for 5 years. She should use a table for the
future value of an ordinary annuity of 1.
future value of 1.
future value of an annuity of 1.
present value of an annuity due of 1.