Exam 3: Accrual Accounting

The following entry was recorded by Woodrow Inc.: Cash 57,000 Accumulated depreciation 33,000 Loss on disposal of property, plant and equipment (PPE) 10,000 PPE 100,000 What is the effect on Woodrow's financial statements?

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?

What is meant by the phrase "true and fair view" of financial reporting?

Which of the following would be accounted for retrospectively? (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.

In North America, the balance sheet

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

Which statement is incorrect about the cash flow statement?

Why is it important to properly define the reporting period when using the accrual basis of accounting?

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. A major client unexpectedly goes bankrupt and it is determined that you will get only 30% of the value of their account receivable as full and final settlement. (Justify your recommendation.)

What is a "current asset"?

IFRS identifies a number of criteria to determine whether an asset can be classified as current. Satisfying any one of these criteria is sufficient. For the following list of criteria, identify whether each one is relevant for the classification of an asset as current instead of non-current.

What is meant by "earnings quality"?

Here are selected balances for Beaver Creek Inc for December 31, 2021: Required: A. Prepare the balance sheet for Beaver Creek Inc. with items classified as current and non-current. B. Prepare the statement of comprehensive income. C. Determine the missing amounts: Cost of goods

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 closing (gross)accounts receivable Warranty expense 5\% of sales Allowance: an analysis of sales and repairs Using the following information about activities for 2019-2021, derive the net income for each year under both accounting options: 2019 2020 2021 Sales (all on account) 10,500,000 13,500,000 14,100,000 Inventory purchases (paid immediately) 4,500,000 3,000,000 2,900,000 Ending inventory value: FIFO 1,800,000 2,000,000 2,150,000 Ending inventory value: Average cost 1,710,000 1,750,000 2,150,000 Collections 9,500,000 12,500,000 7,165,000 Amounts actually written off 100,000 250,000 750,000 Warranties actually paid 180,000 500,000 525,000 Estimated warranty payable ending balance based on ageing analysis of sales 385,000 525,000 700,000 Depreciation expense 1,100,000 1,100,000 1,100,000 All other operating expenses (paid 2,500,000 2,800,000 3,000,000 mmediately)

Explain the meaning of the cash basis of accounting and the accrual basis of accounting. When is the cash basis appropriate? Why is the accrual basis used in financial reporting?

Explain how "accruals" are used in financial reporting. Provide an example to support your discussion.

For the following types of accounting changes, identify the relevant criteria for each accounting change by selecting "yes," "no," or "N/A" (not applicable). Accounting change due to management choice (Yes, No, N/A) Information known (or should have been known) in the prior period Yes, No, N/A) Error correction Change in estimate Change in accounting policy

Which statement is not correct?

IFRS identifies a number of criteria to determine whether an asset can be classified as current. Satisfying any one of these criteria is sufficient. For the following list of criteria, identify whether each one is relevant for the classification of an asset as current instead of non-current.

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