Accountants' standard report on a compilation of a projection should not include a statement that
A. There will usually be differences between the forecasted and actual results.
B. The compilation of a projection is limited in scope.
C. The accountant has no responsibility to update the report for future events and circumstances.
D. The hypothetical assumptions used in the projection are reasonable in the circumstances.
Gaodun Education is arranging financing for the purchase of a new piece of equipment that has a five-year expected useful life. Which of the following alternative financing arrangements has the lowest effective annual percentage rate if each has a quoted nominal rate of 9.5%?
A. A five-year term loan with interest compounded annually.
B. A ten-year term loan with interest compounded semiannually.
C. A five-year term loan with interest compounded quarterly.
D. A ten-year term loan with interest compounded monthly.?
An instrument complies with the requirements for negotiability contained in the Negotiable Instruments Article of the Uniform Commercial Code. The instrument contains language expressly acknowledging the receipt of $10,000 by the First Bank of Grand Rapids and an agreement to repay principal with interest at 15% 1 year from date. This instrument is
A. Nonnegotiable because of the additional language.
B. A negotiable certificate of deposit.
C. A banker’s draft.
D. A banker’s acceptance.
A company received royalties from the assignment of patents to other enterprises. In the period in which the royalties are earned, the royalties should be
A. Reported as revenue.
B. Amortized to income over the remaining useful life of the patent.
C. Subtracted from the capitalizable cost of the patent.
D. Netted against patent amortization expense.
D is corrent because the accountants do not indicate that the hypothetical assumptions used in the projection are reasonable.
A is incorrect because it provides information ordinarily included in an accountant’s standard report on a compilation of a projection. See AT 301 for information on financial forecasts and projections.
A is correct. For any given quoted nominal rate, the least frequent compounding is associated with the lowest effective annual percentage cost. Annual compounding is less frequent than semiannual, quarterly, or monthly. Note that the term of the loan is not relevant to the calculation of the effective annual percentage cost of financing.
B is incorrect. The more frequent the interest compounding, the more costly the loan. Semiannual, quarterly, and monthly compounding are all more frequent than annual compounding.
C is incorrect. The more frequent the interest compounding, the more costly the loan.
D is incorrect. The more frequent the interest compounding, the more costly the loan.
This answer is correct because a negotiable certificate of deposit is an instrument that complies with the requirements of a negotiable instrument and contains an acknowledgment of receipt of money by a bank with an agreement to repay it.
A is corrent. Per SFAC 5, revenues are considered to be "earned" when the entity has substantially completed the duties entitling it to the benefits represented by the revenues. When a company assigns patents to other enterprises, it earns royalties as the sales of patented products are made. Therefore, these royalties should be reported as revenue in the period in which they are earned.