Exam 3: Accrual Accounting

The following information was provided from the records of Nimble Limited, which began operations in the current year: What was the company's pre-tax income for the year?

Xavier Computer Limited was started in early 2010 and continued to operate until early 2013, 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 50% declining-balance 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 10% of sales. 3. The year-end allowance for doubtful accounts should be 40% of gross accounts receivable. Derive net income for 2010 to 2012. For the year-end balance for 2013, 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.

Lean Ltd. had a balance of $52,300 in the office supplies account at the start of the year. During the year, purchases of $141,700 were made and debited to the office supplies account. At the end of the year, a physical count of the office supplies indicated $41,800 on hand. What was the office supplies expense for the year?

General Limited's income statement reported the following for last year: Which of the following statements is correct about the income statement?

A company's reported earnings are $1,000 and cash flows are $600. Based on economic conditions during the year, the company booked allowances of $250. As a result of contractual incentives, the company booked a further $150 in accruals. How much are the unbiased accruals?

Expenses in the income statement may

If the gross profit percentage used in the gross profit inventory method were understated, which of the following is correct?

Explain how financial information prepared using accrual accounting provides better information to predict future cash flows than financial information prepared using the cash basis of accounting.

The method of depreciation was changed from the double-declining-balance method to the straight-line method in fiscal 2013. A machine was purchased on January 1, 2011, 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 $80,000 for fiscal 2011. What is the appropriate accounting for fiscal 2011?

You are having coffee with a friend of yours who is interested in investing in a Canadian public company. Your friend gives you the audited financial statements but says he does not understand how this information is supposed to be helping him. Explain what is contained in a complete set of financial statements and how this information can help your friend with his decision-making needs.

The following entry was recorded by Hollow Inc.: What is the effect on Hollow's financial statements?

Which is not an example of a biased accrual?

A company's reported earnings are $2,000 and cash flows are $1,600. Based on economic conditions during the year, the company booked allowances of $150. As a result of contractual incentives, the company booked a further $250 in accruals. What is the total of the excessive accruals?

The following entry was recorded by Woodrow Inc.: What is the effect on Woodrow's financial statements?

A correction of an accounting error involves

Identify whether each of the following items of operating expense is described according to its nature.

What is classified as a "non-current" liability?

Which statement is correct about the difference between IFRS and ASPE?

IFRS requires certain line items to be presented in the statement of comprehensive income (rather than just disclosed in the notes). Identify whether the following items are required in the statement of comprehensive income.

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.