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ACG 5026 Final Exam Questions and
Correct Answers
Distinguish between tangible and intangible assets Ans: Tangible
asset - something that is physical (equipment, real estate,
machinery, etc)
Intangible - something that is not physical but provides owner
with specific rights (copyright, patent, trademark, goodwill)
What is the accounting treatment of Research & Development
expenditures? Ans: Because they are risky and uncertain in
nature, they are expensed as they are incurred (immediately in that
period)
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, 2 | Page
Extremely difficult to accurately estimate success of R&D ventures
How does Goodwill arise? Ans: When a company purchases
something for a cost that is higher than the market value
How is Goodwill accounted for? Ans: Indefinite life, never
amortized
What is a contingent liability? Ans: Must be both a probable
obligation and reasonably estimable
What are current liabilities? Ans: Short-term obligations that need
to be addressed within a year
What are characteristics of debt? Ans: Formal legal contract, fixed
maturity date, fixed periodic payments
What are characteristics of equity? Ans: No legal contract, no
fixed maturity date, discretionary dividends
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, 3 | Page
What are the components of Shareholders' Equity Ans:
Contributed Capital & Earned Capital
What is contributed capital? Ans: Cumulative cash inflows
received from the issuance of various classes of stock (common
stock & preferred stock)
What is earned capital? Ans: Represents retained earnings and
other comprehensive income (OCI)
What are stock dividends? Ans: Dividends paid to shareholders in
the form of more shares of stock rather than cash (retained
earnings is reduced and contributed capital is increased)
What are stock splits? Ans: Consists of an increase in number of
shares outstanding, but the value of those shares does not change.
(ie 1 share worth $100 is split into 2 shares worth $50 each); not
much economic benefit to do a stock split
© 2025 All rights reserved
ACG 5026 Final Exam Questions and
Correct Answers
Distinguish between tangible and intangible assets Ans: Tangible
asset - something that is physical (equipment, real estate,
machinery, etc)
Intangible - something that is not physical but provides owner
with specific rights (copyright, patent, trademark, goodwill)
What is the accounting treatment of Research & Development
expenditures? Ans: Because they are risky and uncertain in
nature, they are expensed as they are incurred (immediately in that
period)
© 2025 All rights reserved
, 2 | Page
Extremely difficult to accurately estimate success of R&D ventures
How does Goodwill arise? Ans: When a company purchases
something for a cost that is higher than the market value
How is Goodwill accounted for? Ans: Indefinite life, never
amortized
What is a contingent liability? Ans: Must be both a probable
obligation and reasonably estimable
What are current liabilities? Ans: Short-term obligations that need
to be addressed within a year
What are characteristics of debt? Ans: Formal legal contract, fixed
maturity date, fixed periodic payments
What are characteristics of equity? Ans: No legal contract, no
fixed maturity date, discretionary dividends
© 2025 All rights reserved
, 3 | Page
What are the components of Shareholders' Equity Ans:
Contributed Capital & Earned Capital
What is contributed capital? Ans: Cumulative cash inflows
received from the issuance of various classes of stock (common
stock & preferred stock)
What is earned capital? Ans: Represents retained earnings and
other comprehensive income (OCI)
What are stock dividends? Ans: Dividends paid to shareholders in
the form of more shares of stock rather than cash (retained
earnings is reduced and contributed capital is increased)
What are stock splits? Ans: Consists of an increase in number of
shares outstanding, but the value of those shares does not change.
(ie 1 share worth $100 is split into 2 shares worth $50 each); not
much economic benefit to do a stock split
© 2025 All rights reserved
