Question 1

Which of the following is an example of a change in accounting estimate?

Accepted Answer

A) Switching from straight-line to the declining balance method of depreciation. 
B) Using 3% for the allowance for bad debts,instead of 1% as stated in the company's procedures manual. 
C) Using 5% for the allowance for bad debts because of the increased possibility of bankruptcy by customers. 
D) Changing from weighted average to the first-in,first-out method of inventory valuation. 
A) Switching from straight-line to the declining balance method of depreciation. 
B) Using 3% for the allowance for bad debts,instead of 1% as stated in the company's procedures manual. 
C) Using 5% for the allowance for bad debts because of the increased possibility of bankruptcy by customers. 
D) Changing from weighted average to the first-in,first-out method of inventory valuation.

Question 2

McMillan Industries Ltd.reports the following transactions and events for fiscal 2017 and 2018.
a.On January 11,2018,there was a fire and the company had insufficient fire insurance.As such a material loss will result and operations will be curtailed for the next six months.
b.The allowance for doubtful accounts (ADA)was increased in 2017 due to deteriorating economic conditions.Using the old estimate,ADA would have been $171,000.The new estimate is $184,000.
c.On December 30,2017,there was a significant decrease of $15,000 in the market price of some inventory due to new technology.The market price is $15,000 lower than the carrying values used in fiscal 2017 statements.This occurred after the company's year-end but before the completion of the audit and issuance of the financial statements.
d.A new competitor entered the marketplace in March 2018;this will likely reduce 2018 revenues and net income.
e.In January 2018,the accountant recorded $17,000 for sales made on credit on December 28,2017.
f.The revenue recognition policy was changed in 2017.The result is a decrease in 2016 revenue by $40,200 and a decrease in 2017 revenue by $60,300 relative to the amounts under the old policy.
g.New technology made some equipment obsolete on January 26,2018;the fair market and salvage value have decreased by 50%.This occurred after the company's year-end but before the completion of the audit and issuance of the financial statements.
h.A major client unexpectedly went bankrupt on January 20,2018.The company received 10% of the value of the accounts receivable as full and final settlement on February 20,2018.This occurred after the company's year-end but before the completion of the audit and issuance of the financial statements.
i.The company has not previously needed to accrue for warranties.A new consumer protection law comes into effect in June 2018,giving buyers a guarantee against defects for 180 days after purchase and the ability to return defective products to the retailer.
Required:
For each event,determine whether it requires note disclosure or an adjustment to the 2017 financial statements.Ignore income taxes.Use the following table for your response.Justify your recommendations.

Accepted Answer

The answer of McMillan Industries Ltd.reports the following transactions and...

Question 3

Which statement is correct about expenses in the income statement?

Accepted Answer

A) Some function of expense categories are depreciation or employee costs. 
B) Expenses can be classified in any manner under IFRS. 
C) The function of expense format classifies expenses based on their use. 
D) Expenses should be classified based on their materiality. 
A) Some function of expense categories are depreciation or employee costs. 
B) Expenses can be classified in any manner under IFRS. 
C) The function of expense format classifies expenses based on their use. 
D) Expenses should be classified based on their materiality.

Question 4

A change in accounting policy should

Accepted Answer

A) be based on changes in the underlying economics of business transactions. 
B) not be based on management's best discretion. 
C) be based on improving the comparability of financial reporting. 
D) not be based on changes to accounting standards. 
A) be based on changes in the underlying economics of business transactions. 
B) not be based on management's best discretion. 
C) be based on improving the comparability of financial reporting. 
D) not be based on changes to accounting standards.

Question 5

The method of depreciation was changed from the double-declining-balance method to the straight-line method in fiscal 2019.A machine was purchased on January 1,2017,at a cost of $150,000.The machine has an estimated useful life of 10 years and a residual value of $9,000.What adjustment is needed for fiscal 2018?

Accepted Answer

A) $9,900 
B) $10,000 
C) $20,000 
D) $30,000 
A) $9,900 
B) $10,000 
C) $20,000 
D) $30,000

Question 6

Sing Songs Ltd.started operations on January 1,2016.During its first year of operations,the company had a choice of accounting policies:
   
Using the following information about activities for 2016-2018,derive the net income for each year under both accounting options:

Accepted Answer

Accounting

Question 7

During the past year,Easy Supplies Ltd.'s assets decreased $33,000,its liabilities decreased $41,000,its share capital increased $5,000,and the company recorded net income of $12,000.What was the amount of dividends declared?

Accepted Answer

A) $ 1,000 
B) $ 9,000 
C) $12,000 
D) $19,000 
A) $ 1,000 
B) $ 9,000 
C) $12,000 
D) $19,000

Question 8

Sing Songs Ltd.started operations on January 1,2016.During its first year of operations,the company had a choice of accounting policies:
   
Explain why net income would not be the same under both accounting options.

Accepted Answer

Net income would be different between me

Question 9

Windmere Corporation had total shareholders' equity of $765,000 at the beginning of the year and $873,000 at the end of the year.Shareholders invested an additional $75,000 in common shares and $15,000 in preferred shares during the year.Net income was $43,000.Calculate the dividends paid for the year.

Accepted Answer

A) $25,000 
B) $43,000 
C) $65,000 
D) $108,000 
A) $25,000 
B) $43,000 
C) $65,000 
D) $108,000

Question 10

The method of depreciation was changed from the double-declining-balance method to the straight-line method in fiscal 2019.A machine was purchased on January 1,2017,at a cost of $150,000.The machine has an estimated useful life of 10 years and a residual value of $9,000.Assume that net income before tax NIBT)was $102,000 for fiscal 2018.What is the appropriate accounting for fiscal 2018?

Accepted Answer

A) Retrospective adjustment and revised NIBT of $87,900. 
B) Retrospective adjustment and revised NIBT of $126,000. 
C) Retrospective adjustment and revised NIBT of $111,900. 
D) No accounting is necessary in fiscal 2018. 
A) Retrospective adjustment and revised NIBT of $87,900. 
B) Retrospective adjustment and revised NIBT of $126,000. 
C) Retrospective adjustment and revised NIBT of $111,900. 
D) No accounting is necessary in fiscal 2018.

Question 11

The following event occurred after the company's year-end but before the completion of the audit.For this subsequent event,determine whether the event:
• requires an adjustment to the year-end financial statements,
• requires note disclosure,or
• requires neither adjustment to recognized amounts nor disclosure.
There is a fire at the company's only warehouse;the company has insufficient fire insurance to replace the warehouse and contents such that a material loss will result and operations will be curtailed for six months.(Justify your recommendation)

Accepted Answer

No adjustment is required as the fire do

Question 12

Determine the missing amounts:

Accepted Answer

The answer of Determine the missing amounts:
  ...

Question 13

Mandel Corp.repaid a bank loan for $980,000.What effect does this transaction have on these accounts?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 14

Expenses in the income statement may

Accepted Answer

A) be classified on the basis of their currency. 
B) be classified on the basis of their function. 
C) be classified by materiality. 
D) be classified by geographic location. 
A) be classified on the basis of their currency. 
B) be classified on the basis of their function. 
C) be classified by materiality. 
D) be classified by geographic location.

Question 15

Which is not an example of a biased accrual?

Accepted Answer

A) Accruals based on overly optimistic estimates. 
B) Accruals based on overly conservative estimates. 
C) Accruals based on achieving target level of revenues. 
D) Accruals based on applying professional judgment. 
A) Accruals based on overly optimistic estimates. 
B) Accruals based on overly conservative estimates. 
C) Accruals based on achieving target level of revenues. 
D) Accruals based on applying professional judgment.

Question 16

What is the significance of the subsequent events period for accrual accounting?

Accepted Answer

A) The subsequent events period can affect the recognition of business transactions and events. 
B) The subsequent events period can affect the measurement of business transactions and events. 
C) The subsequent events period can affect the recognition and measurement of business transactions and events. 
D) Transactions must be reported in the cut-off period before the statements are authorized. 
A) The subsequent events period can affect the recognition of business transactions and events. 
B) The subsequent events period can affect the measurement of business transactions and events. 
C) The subsequent events period can affect the recognition and measurement of business transactions and events. 
D) Transactions must be reported in the cut-off period before the statements are authorized.

Question 17

Which of the following would be accounted for retrospectively? (More than one answer may be correct. )

Accepted Answer

A) A furniture maker decreases bad debts expense from 3% to 2% of credit sales. 
B) A manufacturer determines that credit losses are becoming material due to deteriorating economic conditions.As a result,it decides to set up an allowance for doubtful accounts at 5% of amounts over 90 days. 
C) A parking service estimates bad debts to be 10% of the value of parking violations issued.In the current year,it changes to estimating the allowance for bad debts to be equal to 20% of accounts 30 to 90 days and 50% of accounts over 90 days. 
D) A shipbuilder changes its revenue recognition policy from the point of receipt by the customer to when the ship leaves the factory shipyard.This change results from a change in shipping policy from f.o.b.destination to f.o.b.shipping point.(Recall from introductory accounting that f.o.b.means "free on board," and it refers to the point at which ownership transfers from seller to buyer. ) 
E) An electronics retailer has never accrued for warranties or product guarantees.A new consumer protection law comes into effect,giving buyers of electronic products a guarantee against defects for 180 days after purchase and the ability to return defective products to the retailer.
F)A clothing company that has been operating for 20 years decides to obtain an external audit for the first time in order to meet the bank's demands. The audit firm recommends that management report inventories at the lower of cost and net realizable value, whereas the company has previously only tracked and reported inventory figures at cost. 
A) A furniture maker decreases bad debts expense from 3% to 2% of credit sales. 
B) A manufacturer determines that credit losses are becoming material due to deteriorating economic conditions.As a result,it decides to set up an allowance for doubtful accounts at 5% of amounts over 90 days. 
C) A parking service estimates bad debts to be 10% of the value of parking violations issued.In the current year,it changes to estimating the allowance for bad debts to be equal to 20% of accounts 30 to 90 days and 50% of accounts over 90 days. 
D) A shipbuilder changes its revenue recognition policy from the point of receipt by the customer to when the ship leaves the factory shipyard.This change results from a change in shipping policy from f.o.b.destination to f.o.b.shipping point.(Recall from introductory accounting that f.o.b.means "free on board," and it refers to the point at which ownership transfers from seller to buyer. ) 
E) An electronics retailer has never accrued for warranties or product guarantees.A new consumer protection law comes into effect,giving buyers of electronic products a guarantee against defects for 180 days after purchase and the ability to return defective products to the retailer.
F)A clothing company that has been operating for 20 years decides to obtain an external audit for the first time in order to meet the bank's demands. The audit firm recommends that management report inventories at the lower of cost and net realizable value, whereas the company has previously only tracked and reported inventory figures at cost.

Question 18

A company's cash flows are $3,600.Based on economic conditions during the year,the company booked allowances of $1,500.As a result of contractual incentives,the company booked a further $700 in accruals.What is the total reported earnings of the company?

Accepted Answer

A) $1,400 
B) $2,200 
C) $3,600 
D) $5,800 
A) $1,400 
B) $2,200 
C) $3,600 
D) $5,800

Question 19

Which statement is not correct?

Accepted Answer

A) Accruals involve uncertainty about future transactions and events. 
B) Companies must use the same accounting estimates year-over-year in preparing statements. 
C) A company can change its accounting policies if it provides more relevant information. 
D) Higher earnings quality provides users with more decision useful financial statements. 
A) Accruals involve uncertainty about future transactions and events. 
B) Companies must use the same accounting estimates year-over-year in preparing statements. 
C) A company can change its accounting policies if it provides more relevant information. 
D) Higher earnings quality provides users with more decision useful financial statements.

Question 20

Computer Consulting Limited was started in early 2016 and continued to operate until early 2019,when it was wound up due to disputes between the two principal shareholders.When it started,the company used the following accounting policies:
1.Use straight-line depreciation for the firm's only asset,a computer which cost $1,100,000 and has an estimated useful life of four years.
2.Estimate warranty expense as 9% of sales.
3.Estimate bad debts expense as 5% of sales.
Derive net income for 2016 to 2018.For the year-end balance for 2019,assume accounts receivable,allowance for doubtful accounts,and the warranty accrual are $0,as the firm wound itself up during the year and all timing differences have been resolved.

Accepted Answer

The answer of Computer Consulting Limited was started in early...

Which of the following is an example of a change in accounting estimate?

Which statement is correct about expenses in the income statement?

A change in accounting policy should

Sing Songs Ltd.started operations on January 1,2016.During its first year of operations,the company had a choice of accounting policies: Using the following information about activities for 2016-2018,derive the net income for each year under both accounting options:

During the past year,Easy Supplies Ltd.'s assets decreased $33,000,its liabilities decreased $41,000,its share capital increased $5,000,and the company recorded net income of $12,000.What was the amount of dividends declared?

Sing Songs Ltd.started operations on January 1,2016.During its first year of operations,the company had a choice of accounting policies: Explain why net income would not be the same under both accounting options.

Determine the missing amounts:

Mandel Corp.repaid a bank loan for $980,000.What effect does this transaction have on these accounts?

Expenses in the income statement may

Which is not an example of a biased accrual?

What is the significance of the subsequent events period for accrual accounting?

Which of the following would be accounted for retrospectively? (More than one answer may be correct. )

A company's cash flows are $3,600.Based on economic conditions during the year,the company booked allowances of $1,500.As a result of contractual incentives,the company booked a further $700 in accruals.What is the total reported earnings of the company?

Which statement is not correct?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Revenue and Recognition

Cash and Receivables

Inventories

Financial Assets

Property, plant and Equipment

Intangible Assets, goodwill, mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters

Exam 3: Accrual Accounting

Which of the following is an example of a change in accounting estimate?

Which statement is correct about expenses in the income statement?

A change in accounting policy should

Sing Songs Ltd.started operations on January 1,2016.During its first year of operations,the company had a choice of accounting policies: Using the following information about activities for 2016-2018,derive the net income for each year under both accounting options:

During the past year,Easy Supplies Ltd.'s assets decreased $33,000,its liabilities decreased $41,000,its share capital increased $5,000,and the company recorded net income of $12,000.What was the amount of dividends declared?

Sing Songs Ltd.started operations on January 1,2016.During its first year of operations,the company had a choice of accounting policies: Explain why net income would not be the same under both accounting options.

Determine the missing amounts:

Mandel Corp.repaid a bank loan for $980,000.What effect does this transaction have on these accounts?

Expenses in the income statement may

Which is not an example of a biased accrual?

What is the significance of the subsequent events period for accrual accounting?

Which of the following would be accounted for retrospectively? (More than one answer may be correct. )

A company's cash flows are $3,600.Based on economic conditions during the year,the company booked allowances of $1,500.As a result of contractual incentives,the company booked a further $700 in accruals.What is the total reported earnings of the company?

Which statement is not correct?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Revenue and Recognition

Cash and Receivables

Inventories

Financial Assets

Property, plant and Equipment

Intangible Assets, goodwill, mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters