The Framework For Financial Reporting

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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

All Questions

Question 41

Multiple Choice

Long-term obligations (i.e.,debts)that is callable for early payment:

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Must continue to be classified as a long-term liability by the debtor, if a provision of the debt covenant has been violated.

Must continue to be classified as a long-term liability in all situations.

Must be reported as current liabilities by the debtor if callable on demand.

Can be reported as current liabilities by the debtor only if callable because a provision of the debt covenant has been violated.

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Question 42

Multiple Choice

A company had sales of $1 million.Coupons in the amount of $1 per $10 in sales were given to paying customers.History has shown that 50% of all coupons are redeemed.Which of the following statements is correct?

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A provision for $50,000 must be recognized.

A provision for $100,000 must be recognized.

A provision for $1 million must be recognized.

No provision is necessary.

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Question 43

Multiple Choice

By law,a fleet of aircraft must be subject to a major overhaul every 5 years as part of its scheduled maintenance program.Which of the following statements is correct?

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An accrual should be made in each of the 5 years preceding the overhaul.

The costs of the overhaul should be expensed as incurred.

The cost of the overhaul should be deferred and amortized.

The estimated cost of the overhaul should be disclosed as part of a continuity schedule in the notes to the financial statements.

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Question 44

Multiple Choice

Which of the following statements is correct?

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For companies that are self-insured, a provision must be established for events taking place prior to the reporting period if known.

There is no guidance for self-insurance under IFRS.

Contingent assets are only recorded when it is virtually certain that the benefits relating to the contingent assets will be received.

Contingent assets are only recorded when it is reasonably certain that the benefits relating to the contingent assets will be received.

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Question 45

Multiple Choice

Information obtained prior to the issuance of the current period's financial statements of KG Company indicates that it is probable that,at the date of the financial statements,a liability will be incurred for obligations related to product warranties on products sold during the current period.During the past three years,product warranty costs have been approximately 1 1/2 percent of annual sales revenue.An estimated loss contingency should be:

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Neither accrued nor disclosed in the financial statements.

Recognized as an appropriation of retained earnings.

Accrued in the accounts and reported in the financial statements.

Disclosed in the financial statements but not accrued.

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Question 46

Multiple Choice

Contingent liabilities will or will not become actual liabilities depending on:

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Whether they are probable and estimable

The degree of uncertainty

The present condition suggesting a liability

The outcome of a future event

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Question 47

Multiple Choice

Under IFRS,which of the following will only require only a note disclosure as a contingency?

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Cash discounts given for early payment by customers; almost always taken

Remote chance of loss from a lawsuit in process

Probable claim for an income tax refund

Loss from an investment in equity securities that is certain

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Question 48

Multiple Choice

Which of the following contingencies should be accrued in the accounts and reported in the financial statements?

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The estimated expenses of a one-year product warranty.

The company is forcefully contesting a personal injury suit and a loss is possible and reasonably estimable.

An accommodation endorsement involving a remote loss.

It is probable that the company will receive $50,000 in settlement of a lawsuit.

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Question 49

Multiple Choice

KR Corporation was involved in a lawsuit with the Government alleging inadequate air pollution control facilities at its Glowworm plant site during 2013.At December 31,2016,it appeared probable the Government would settle for approximately $150,000.This event should be recorded (i.e.,recognized)in 2016 as a(n):

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Loss on the lawsuit (operating expense).

Unusual gain.

Prior period adjustment.

Unusual loss.

Disclosure of contingency loss only in a note.

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Question 50

Multiple Choice

On January 1,2014,DWW borrowed $400,000 cash and signed a one-year,12 percent interest-bearing note payable.Assuming a 40 percent average income tax rate for DWW Corporation,the net effective interest rate on this note was:

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4.8 percent.

6.0 percent.

7.2 percent.

12.0 percent.

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Question 51

Multiple Choice

XYZ borrowed $60,000 for one year and signed an 18 percent,interest-bearing note payable.Assuming XYZ has an income tax rate of 45 percent,the net effective rate was:

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8.1 percent.

9.9 percent.

11.7 percent.

18 percent.

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Question 52

Multiple Choice

On September 1,2012,Company B signed a $7,392,two-year non-interest-bearing note payable in full on August 31,2014.Company B received $6,000 cash.What was the yield or effective rate of interest?

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11 percent

14 percent

18 percent

23 percent

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Question 53

Multiple Choice

VCR Company owed a $73,311 debt due on January 1,2012.An agreement was reached to pay it off in three equal annual payments of $30,000 each,starting on December 31,2012.The interest rate was 11 percent.The balance in the liability account of VCR Company on January 1,2014 is (round annual payment to nearest $1):

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$27,026

$51,875

$73,311

$90,000

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Question 54

Multiple Choice

XY Company owed a $45,489 due on January 1,2015.An agreement was reached to pay it off in five equal annual payments,starting on December 31,2015.The interest rate was 10 percent.The total amount of interest paid under the terms of the agreement was (round annual payment to nearest $1):

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$25,000

$22,745

$14,511

$6,000

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Question 55

Multiple Choice

A firm sells products covered by a three-year warranty.From the past experience of the other firms in the industry,the firm expects to incur warranty costs equal to 1% of sales.Firm sales were $40,000 and $50,000 in 2013 and 2014 respectively.In 2014,the firm spent $200 to repair goods sold in 2013,and $300 to repair goods sold in 2014.The firm received no warranty servicing demands from customers in 2013,the firm's first year of operations.What is the balance in the warranty liability account on January 1,2014?

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$400

$500

$300

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Question 56

Multiple Choice

On January 1,2014,JG purchased a machine and gave a $30,000 three-year,8% note.The market or "going" interest rate was 12%.The annual interest payments are to be paid on each December 31.On January 1,2014,JG should record the net liability amount determined as follows:

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Compute the present value of its face amount and the three $2,400 interest amounts by using a discount rate of 8%.

Compute the present value of its face amount and the three $2,400 interest amounts by using a discount rate of 12%.

Use its face amount, $30,000 plus the $7,200 interest.

Use its face amount, $30,000 minus $7,200 interest.

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Question 57

Multiple Choice

Ryan Company borrow $45,000 US when the exchange rate for US $1.00 is Cdn.$1.46.When the debt was repaid the exchange rate changes to US $1.00 = Cdn.$1.38.Ryan Company records the amount on the date of exchange as:

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A foreign exchange loss of $3,600.

A foreign exchange gain of $3,600.

A foreign exchange gain of $62,100.

A foreign exchange loss of $62,100.

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Question 58

Essay

A company has been sued for damages as a result of illness caused to local residents due to the emission of highly toxic chemicals from its plant.The company's legal firm advises that it is probable that the company will lose the suit and that it probably will result in a judgment of $2 million to $10 million in damages.However,the legal firm believes that the most probable amount of the loss will be $6 million,and that the suit will be terminated about three years hence.The company has no other lawsuits pending.
(a)Should the company disclose this event in the year the suit was filed? (check one) ___ No; _ Note only; ___ A loss in the income statement.
(b)If a loss should be reported,give the journal entry required:

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Question 59

Essay

A retail store has completed certain transactions that management believes may have caused current liabilities.Indicate by check mark whether the following items should be classified as current liabilities.Assume a December 31 year-end.

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Question 60

Essay

On January 1,2012,a company purchased a machine that had a list price of $23,500.The purchase terms agreed upon were: cash down payment $12,000 plus a 15% note payable of $9,132 (its present value).The note is payable in three equal annual instalments (interest plus principal)on each December 31.Round to the nearest dollar.
Required:
(a)Give the entry to record the acquisition of the machine.
(b)Give the adjusting entry required on September 30,2014,for interest assuming this is the end of the accounting period.

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