Question 1

Under IFRS, a provision is
A)a special fund set aside to pay long-term debt.
B)unearned revenue.
C)a liability of uncertain timing or amount.
D)an allowance for future dividends to be paid.

Accepted Answer

A provision is a liability of uncertain timing or amount. It is recognized when an entity has a present obligation (legal or constructive) as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Examples of provisions include warranties, restructuring costs, and legal claims.

Question 2

Which of the following statements is INCORRECT concerning warranties?
A)Using the expense approach, the warranty is provided with the product or service with no
Additional fee.
B)Where warranty costs are immaterial or when the warranty period is quite short, the
Warranty costs may be accounted for using the cash basis.
C)Using the revenue approach, the warranty is a separate deliverable from the related
Product or service.
D)The revenue approach must be used for income tax purposes.

Accepted Answer

The revenue approach is not a requirement for income tax purposes; it is an accounting method used to recognize revenue separately for warranties.

Question 3

On November 1, 2014, Best Corp.signed a three-month, zero-interest-bearing note for the purchase of $80,000 of inventory.The maturity value of the note was $81,200, based on the bank's discount rate of 6%.The adjusting entry prepared on December 31, 2014 in connection with this note will include a
A)debit to Note Payable for $800.
B)credit to Note Payable for $800.
C)debit to Interest Expense for $1,200.
D)credit to Interest Expense for $800.

Accepted Answer

The answer of On November 1, 2014, Best Corp.signed a...

Question 4

Which of the following commitments would NOT require disclosure in the financial statement notes?
A)major property, plant and equipment expenditures
B)payments under non-cancellable operating leases
C)large purchases of materials in the normal course of business
D)commitments involving significant risk

Accepted Answer

Large purchases of materials in the normal course of business are not considered commitments that require disclosure in the financial statement notes. However, major property, plant and equipment expenditures, payments under non-cancellable operating leases, and commitments involving significant risk are all considered material commitments that should be disclosed.

Question 5

On December 1, 2014, Corby Ltd.borrowed $270,000 from their bank, by signing a four- month, 7% interest bearing note.Assuming Corby has a December 31 year end and does NOT use reversing entries, the journal entry to record payment of this note on April 1, 2015 will include a
A)credit to Note Payable of $270,000.
B)debit to Interest Expense of $6,300.
C)debit to Interest Payable of $4,725.
D)debit to Interest Payable of $1,575.

Accepted Answer

The answer of On December 1, 2014, Corby Ltd.borrowed $270,000...

Question 6

What are the current International Financial Reporting Standards regarding customer loyalty programs (such as frequent flyer points)?
A)They are recognized only in the financial statement notes.
B)They are recognized only when customers redeem their points.
C)They are not explicitly addressed.
D)The current proceeds are to be split between the original transaction and the award
Credits (as unearned revenue).

Accepted Answer

Under IFRS 15, revenue from customer loyalty programs is recognized by allocating a portion of the transaction price to the loyalty points, which are treated as a separate performance obligation. This portion is recognized as unearned revenue until the points are redeemed or expire.

Question 7

Which of the following statements is INCORRECT regarding the recording of the related increase or accretion in the carrying amount of an asset retirement obligation (ARO)?
A)Under ASPE, it is recognized as interest expense.
B)Under ASPE, it is recognized as an operating expense (but not as interest expense).
C)Under IFRS, it is recognized as a borrowing cost.
D)The amount should be calculated using the same discount (interest rate)as was used
To calculate the initial present value of the ARO.

Accepted Answer

The answer of Which of the following statements is INCORRECT...

Question 8

Under current IFRS requirements, a provision is recognized if
A)the amount of the loss can be reliably measured and it is probable that an asset has
Been impaired or a liability incurred as of the financial statement date.
B)the amount of the loss cannot be measured reliably but it is probable that an asset has
Been impaired or a liability incurred as of the financial statement date.
C)it relates to a lawsuit commenced after the statement of financial position date, the
Outcome of which can be reliably measured.
D)it relates to an asset recognized as impaired after the statement of financial position
Date.

Accepted Answer

A provision is recognized if the amount of the loss can be reliably measured and it is probable that an asset has been impaired or a liability incurred as of the financial statement date.

Question 9

Using the revenue approach of accounting for product guarantees and warranty obligations
A)the liability is measured at the estimated cost of meeting the obligation.
B)there is no effect on future income.
C)the liability is measured at the value of the services to be provided.
D)the liability is measured at the value of the services to be provided, but there is no
Effect on future income.
Non-Financial and Current Liabilities 13- 13

Accepted Answer

The revenue approach measures the liability at the value of the services to be provided, reflecting the future obligation to provide services under the warranty.

Question 10

On December 31, 2014, Street Ltd.has $2,000,000 in short-term notes payable due on February 14, 2015.On January 10, 2015, Street arranged a line of credit with Regal Bank, which allows Street to borrow up to $1,500,000 at 1% above the prime rate for three years.On February 2, 2015, Street borrowed $1,200,000 from Regal Bank and used $500,000 additional cash to liquidate $1,700,000 of the short-term notes payable.Assuming Street adheres to IFRS, the amount of the short-term notes payable that should be reported as current liabilities on Street's December 31, 2014 statement of financial position (to be issued on March 5, 2015)is
A)$0.
B)$300,000.
C)$1,200,000.
Non-Financial and Current Liabilities 13- 17
D)$2,000,000.

Accepted Answer

The answer of On December 31, 2014, Street Ltd.has $2,000,000...

Question 11

Under ASPE, a contingent liability is recognized if
A)it is certain that funds are available to settle the contingency.
B)an asset may have been impaired.
C)the amount of the loss can be reasonably estimated and it is likely that an asset has
Been impaired or a liability incurred as of the financial statement date.
D)it is likely that an asset has been impaired or a liability incurred even though the amount
Of the loss cannot be reasonably estimated.

Accepted Answer

Under ASPE, a contingent liability is recognized when it is likely that an asset has been impaired or a liability incurred as of the financial statement date, and the amount of the loss can be reasonably estimated.

Question 12

Under ASPE, an asset retirement obligation should be recognized when
A)an asset is impaired and is available for sale.
B)operation of an asset has resulted in an additional obligation such as the cost of cleaning
Up an oil spill.
C)there is a legal obligation to restore the site of the asset at the end of its useful life.
D)the company has an obligation to purchase a long-lived asset.

Accepted Answer

Under ASPE, an asset retirement obligation is recognized when there is a legal obligation to restore the site of the asset at the end of its useful life.

Question 13

On February 10, 2014, after issuance of its financial statements for calendar 2013, Diogenes Corp.entered into a financing agreement with Gigantic Bank, allowing Diogenes Corp.to borrow up to $6,000,000 at any time through 2016.Amounts borrowed under the agreement bear interest at 2% above the bank's prime interest rate and mature two years from the date of the loan.Diogenes presently has $2,250,000 of notes payable with Provincial Bank maturing March 15, 2015.The company intends to borrow $3,750,000 under the agreement with Gigantic and pay off the notes payable to Provincial.The agreement with Gigantic also requires Diogenes to maintain a working capital level of $9,000,000 and prohibits the payment of dividends on common shares without prior approval by Gigantic.From the above information only, the total short-term debt of Diogenes Corp.on the December 31, 2013 statement of financial position is
A)$0.
B)$2,250,000.
C)$3,000,000.
D)$6,000,000.

Accepted Answer

The $2,250,000 notes payable to Provincial Bank maturing on March 15, 2015, are considered short-term debt as of December 31, 2013, because they are due within one year from that date. The financing agreement with Gigantic Bank does not affect the classification of these notes as short-term debt as of December 31, 2013.

Question 14

The numerator of the acid-test ratio consists of
A)total current assets.
B)cash and marketable securities.
C)cash and net receivables.
D)cash, marketable securities, and net receivables.

Accepted Answer

The acid-test ratio measures a company's ability to pay off its current liabilities with its quick assets (assets that can be easily converted to cash). The numerator of the ratio includes only the most liquid quick assets, which are cash, marketable securities, and net receivables. Therefore, the correct answer is D, which includes all three of these assets.

Question 15

The current (commonly used)accounting treatment for premiums and coupons requires that the costs should
A)be recorded at the maximum possible redemption cost in the year of the related sales.
B)be recorded at the total estimated redemption cost in the year of the related sales.
C)be recorded in the year(s)that the redemption is expected to occur.
D)not be recorded at all.

Accepted Answer

The current accounting treatment for premiums and coupons requires that the costs should be recorded at the total estimated redemption cost in the year of the related sales. This means that the estimated cost of redeeming the premiums or coupons should be recorded as an expense in the same year that the goods or services are sold. This approach recognizes the cost of the premiums or coupons as a marketing expense and matches it with the related revenue. This treatment is consistent with the matching principle of accounting, which requires that expenses should be recognized in the same period as the related revenue.

Question 16

Which of the following may NOT be accrued as a contingent liability?
A)threat of expropriation of assets
B)pending or threatened litigation
C)guarantees of indebtedness of other.
D)potential income tax refunds

Accepted Answer

Potential income tax refunds are not considered a contingent liability as they represent a potential gain for the company rather than a potential loss or obligation. Contingent liabilities are potential obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the company. Examples of contingent liabilities include pending or threatened litigation, guarantees of indebtedness of others, and the threat of expropriation of assets.

Question 17

According to the IASB current proposed definition, which of the following is NOT an essential characteristic of a liability?
A)It exists in the present time.
B)There is certainty about the amount of future outflows.
C)The obligation is enforceable on the obligor entity.
D)It represents an economic burden or obligation.

Accepted Answer

The IASB proposed definition of a liability includes that it exists in the present, represents an economic burden or obligation, and is enforceable on the obligor entity. However, there may not always be certainty about the amount of future outflows, as this may depend on future events or the outcome of disputes. Therefore, option B is not an essential characteristic of a liability according to the current proposed definition by the IASB.

Question 18

According to the Exposure Draft of Proposed Amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets
A)only conditional obligations are recorded.
B)liabilities must have measurement certainty.
C)the term "contingent liabilities" is eliminated.
D)a conditional obligation related to an unconditional obligation is not recognized.

Accepted Answer

The answer of According to the Exposure Draft of Proposed...

Question 19

The denominator of the days payable outstanding ratio can be
A)average daily sales.
B)average trade accounts payable.
C)average daily cost of goods sold.
D)average trade accounts receivable.

Accepted Answer

The answer of The denominator of the days payable outstanding...

Question 20

At the time of recognition of an asset retirement obligation, the present value should be
A)recorded as a separate long-term asset and as an asset retirement obligation.
B)expensed and recorded as an asset retirement obligation.
C)expensed to "Asset Retirement Expense" in the period actually paid.
D)added to the related asset cost and recorded as an asset retirement obligation.

Accepted Answer

According to accounting standards, when recognizing an asset retirement obligation (ARO), the present value of the estimated retirement costs is added to the carrying amount of the related long-term asset. This amount is then depreciated over the asset's useful life. Additionally, a liability for the same amount is recognized, reflecting the present value of the obligation to retire the asset in the future.

Quiz 2: Intermediate Accounting Volume 2

Under IFRS, a provision is

Which of the following statements is INCORRECT concerning warranties?

On November 1, 2014, Best Corp.signed a three-month, zero-interest-bearing note for the purchase of $80,000 of inventory.The maturity value of the note was $81,200, based on the bank's discount rate of 6%.The adjusting entry prepared on December 31, 2014 in connection with this note will include a

Which of the following commitments would NOT require disclosure in the financial statement notes?

On December 1, 2014, Corby Ltd.borrowed $270,000 from their bank, by signing a four- month, 7% interest bearing note.Assuming Corby has a December 31 year end and does NOT use reversing entries, the journal entry to record payment of this note on April 1, 2015 will include a

What are the current International Financial Reporting Standards regarding customer loyalty programs (such as frequent flyer points) ?

Which of the following statements is INCORRECT regarding the recording of the related increase or accretion in the carrying amount of an asset retirement obligation (ARO) ?

Under current IFRS requirements, a provision is recognized if

Using the revenue approach of accounting for product guarantees and warranty obligations

Under ASPE, a contingent liability is recognized if

Under ASPE, an asset retirement obligation should be recognized when

The numerator of the acid-test ratio consists of

The current (commonly used) accounting treatment for premiums and coupons requires that the costs should

Which of the following may NOT be accrued as a contingent liability?

According to the IASB current proposed definition, which of the following is NOT an essential characteristic of a liability?

According to the Exposure Draft of Proposed Amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets

The denominator of the days payable outstanding ratio can be

At the time of recognition of an asset retirement obligation, the present value should be