Exam 1: The Framework for Financial Reporting

Warranties provisions may arise from legal or constructive obligations.

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:

Under ASPE,disclosure in the footnotes to the financial statements is the only way to properly report contingent losses.

Capitalization of borrowing costs on qualifying assets is mandatory under both IFRS and ASPE.

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?

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?

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:

Contingencies must be both accrued and disclosed.

Which of the following statements is correct?