Accounting Judgements

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The Framework for Financial Reporting
Accounting Judgements
Statements of Income and Comprehensive Income
Statements of Financial Position and Changes in Equity; Disclosure Notes
The Statement of Cash Flows
Revenue Recognition
Financial Assets: Cash and Receivables
Cost-Based Inventories and Cost of Sales
Long-Lived Assets
Depreciation, Amortization, and Impairment
Financial Instruments: Investments in Bonds and Equity Securities

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Question 1

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The carrying value of a bond from the issuing corporation's standpoint will always move closer to its face value,regardless of whether the bond is issued at a premium or a discount.

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Question 2

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Under the effective interest method,interest expense is calculated by multiplying the market interest rate by the carrying value of the bonds.

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Question 3

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Assume that a company issues bonds at a discount.Under the effective interest method,the company will record progressively less interest expense with the passage of time.

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Question 4

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Transaction costs are usually included in the carrying value of financial liabilities.

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Question 5

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When the market rate exceeds the stated or nominal rate,a bond's carrying value will be less than its fair value.

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Question 6

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The stated rate of interest is the interest rate used to determine the amount of cash interest that will be paid on the principal.

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Question 7

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A short-term payable may be the current portion of a long-term liability,which arises when the next payment on such a debt will be made out of current assets.

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Question 8

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Interest may be recognized on a note even though the note does not explicitly state an interest rate.

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Question 9

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The principal amount of a debt is the cash or cash equivalent amount borrowed.

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Question 10

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Use of the effective interest method for amortizing bond premiums and discounts is mandatory under IFRS but not under ASPE.

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Question 11

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Borrowing costs can only be capitalized on non-financial assets.

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Question 12

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The cost of any equity financing is included when calculating the cost of generalized borrowings.

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Question 13

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Bonds are said to be redeemable when they can be prematurely retired at the discretion of the issuing company and retractable when they can be prematurely retired at the investor's discretion.

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Question 14

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When the maturity date of a bond issue is within one year or the operating cycle (whichever is longer)of the current balance sheet date,the bond liability should be reclassified as a current liability (assuming the payment will be made out of current assets).

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Question 15

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Callable bonds are callable at the option of the investor.

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Question 16

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A $1,000,6%,10-year bond purchased as a long-term investment at an effective rate at 7%,will pay the investor $70 cash interest each year.

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Question 17

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The amortization of a bind discount or premium over the life of a bond will be the same under both the straight line and effective interest methods.

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Question 18

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Hedging is one method of minimizing foreign exchange risk.

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Question 19

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The present value of any bond payable issued between interest-payment dates will include any interest accrued since the last interest payment date.

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Question 20

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Debt issue costs on long-term debt are expensed upon issue.

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