Exam 3: Accrual Accounting

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.

Xavier Computer Limited was started in early 2019 and continued to operate until early 2022, 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 2019 to 2021. For the year-end balance for 2022, 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. 2019 2020 2021 2022 Sales (all on account) 3,400,000 3,600,000 4,100,000 410,000 Warranties paid Proceeds on disposal of computer 272,000 288,000 420,250 147,600 Accounts receivable collected in the year 2,958,000 2,880,000 3,895,000 1,126,000 Accounts receivable written off in the year 102,000 108,000 205,000 236,000 All other expenses (paid in cash in the year incurred) 2,380,000 2,520,000 2,767,500 287,000

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.

Sing Songs Ltd. started operations on January 1, 2019. During its first year of operations, the company had a choice of accounting policies: Accounting Option 1 Accounting Option 2 Inventory valuation FIFO Average cost Bad debt expense 7\% of sales Allowance: 20\% of losing (gross) accounts receivable Warranty expense 5\% of sales Allowance: an analysis of sales and repairs Explain why net income would not be the same under both accounting options.

Which statement is not correct?

Which statement is not correct?

Assume that a company has a fiscal year of July 1, 2021-June 30, 2022. August 15, 2022, was the end of the period for gathering information pertaining to the financial statements. The financial statements were authorized for issue on August 24, 2022. What is the cut off point for the "measurement" of transactions and events in this reporting period?

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

What is an investing cash cycle?

Mandel Corp. retired bonds payable with a carrying value of $980,000. What effect does this transaction have on these accounts?

What is a "deferral"?

The method of depreciation was changed from the double-declining-balance method to the straight-line method in fiscal 2022. A machine was purchased on January 1, 2020, 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 2021. What is the appropriate accounting for fiscal 2021?

What is meant by the "going concern assumption" in financial accounting? Explain the implications to financial accounting if the going concern assumption is not valid.

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 significant fall in the market price of a major portion of inventory due to new technology making the existing items obsolete. The market price is lower than the current carrying value. (Justify your recommendation.)

IFRS identifies a number of criteria to determine whether a liability should be classified as current. A liability that satisfies any one of these criteria must be classified as current. For the following list of criteria, identify whether each one is relevant for the classification of a liability as current instead of non-current.

Which statement is correct about expenses in the income statement?

Expenses in the income statement may

Which of the following would be accounted for as a change in accounting estimate? (More than one answer may be correct.) 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.

Computer Consulting Limited was started in early 2019 and continued to operate until early 2022, 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 2019 to 2021. For the year-end balance for 2022, 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. 2019 2020 2021 2022 Sales (all on account 3,400,000 3,600,000 4,100,000 410,000 Warranties paid 272,000 288,000 420,250 147,600 Proceeds on disposal of computer 0 0 0 410,000 Accounts receivable collected in he year 2,958,000 2,880,000 3,895,000 1,126,000 Accounts receivable written off in the year 102,000 108,000 205,000 236,000 All other expenses (paid in cash in the year incurred) 2,380,000 2,520,000 2,767,500 287,000

Which of the following is an example of the "financing" cash cycle?