Exam 12: Financial Liabilities and Provisions

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:

Under the warranty expense approach, there should be no income statement effects for warranty repairs performed after the year of sale (assuming that accrued warranty expenses and expenditures equal one another).

On January 1, 2000, a corporation purchased a machine (10 year estimated useful life; no residual value; straight-line method)by paying cash $1,500 and signing a note payable with a face amount of $4,500, 8% interest payable each December 31.The maturity date is December 31, 2002.The going market rate of interest was 10%.Give all required entry (entries)at each of the following dates: January 1, 2000: December 31, 2000:

Loyalty points are provided (accrued)for and reversed once the points are redeemed.

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?

A brewing company operating in an Ontario city experiencing water shortages received its water bill for December 2013, on December 31, 2013.The bill ($8,000)represents the cost of water used in December to make its product.The company will not publish the 2013 financial statements until February 2014.Therefore, the adjusting entry as of December 31, 2013 includes which of the following?

Adjustments to fair value relating to FVTPL liabilities will always flow through earnings.

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

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 o 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:

A company may reclassify a current financial liability to a long-term one only if there is a contractual agreement in place by the reporting date to replace the financing.

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?

An improvement to a company's credit rating under IFRS will lead to a reduction in the carrying amount of any financial liabilities and a gain being reported in OCI.

Which one of the following items is not a liability?

Financial liabilities are initially recognized at fair value and at cost, amortized cost or fair value post-acquisition.

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?

BRIEFLY explain how the treatment of contingencies differs under IFRS and ASPE.

Conceptually, liabilities constitute a present obligation as a result of a past event and entail an expected future sacrifice of assets or services.

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?

An administrative fee pertaining to an unsuccessful loan application is to be immediately expensed.

A gain contingency will usually not be recorded in the accounts and reported in the financial statements even though its occurrence is probable.