Question 1

XYZ borrowed $60,000 for one year and signed an 18 percent, interest-bearing note payable.Assuming XYZ has an income tax rate of 45 percent, the net effective rate was:

Accepted Answer

A) 8)1 percent. 
B) 9)9 percent. 
C) 18 percent. 
D) 11.7 percent.

Question 2

Under the warranty expense approach, there should be no income statement effects for warranty repairs performed after the year of sale (assuming that accrued warranty expenses and expenditures equal one another).

Accepted Answer

A) True 
 B)False

Question 3

On January 1, 2000, a corporation purchased a machine (10 year estimated useful life; no residual value; straight-line method)by paying cash $1,500 and signing a note payable with a face amount of
$4,500, 8% interest payable each December 31.The maturity date is December 31, 2002.The going market rate of interest was 10%.Give all required entry (entries)at each of the following dates:
January 1, 2000:
December 31, 2000:

Accepted Answer

The answer of On January 1, 2000, a corporation purchased...

Question 4

Loyalty points are provided (accrued)for and reversed once the points are redeemed.

Accepted Answer

A) True 
 B)False

Question 5

By law, a fleet of aircraft must be subject to a major overhaul every 5 years as part of its scheduled maintenance program.Which of the following statements is correct?

Accepted Answer

A) The estimated cost of the overhaul should be disclosed as part of a continuity schedule in the notes to the financial statements. 
B) The cost of the overhaul should be deferred and amortized. 
C) The costs of the overhaul should be expensed as incurred. 
D) An accrual should be made in each of the 5 years preceding the overhaul.

Question 6

A brewing company operating in an Ontario city experiencing water shortages received its water bill for December 2013, on December 31, 2013.The bill ($8,000)represents the cost of water used in December to make its product.The company will not publish the 2013 financial statements until February 2014.Therefore, the adjusting entry as of December 31, 2013 includes which of the following?

Accepted Answer

A) cr.utilities expense $8,000 
B) cr.cash $8,000 
C) cr.utilities payable $8,000 
D) no adjusting entry needed because the bill will not be paid until January 2014

Question 7

Adjustments to fair value relating to FVTPL liabilities will always flow through earnings.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following contingencies should be accrued in the accounts and reported in the financial statements?

Accepted Answer

A) The estimated expenses of a one-year product warranty. 
B) An accommodation endorsement involving a remote loss. 
C) The company is forcefully contesting a personal injury suit and a loss is possible and reasonably estimable. 
D) It is probable that the company will receive $50,000 in settlement of a lawsuit.

Question 9

A company has been sued for damages as a result of illness caused to local residents due to the emission of highly toxic chemicals from its plant.The company's legal firm advises that it is probable that the company will lose the suit and that it probably will result in a judgment of $2 million to $10 million in damages.However, the legal firm believes that the most probable amount o the loss will be $6 million, and that the suit will be terminated about three years hence.The company has no other lawsuits pending.
(a)Should the company disclose this event in the year the suit was filed? (check one)No;
________ Note only; A loss in the income statement.
(b)If a loss should be reported, give the journal entry required:

Accepted Answer

The answer of A company has been sued for damages...

Question 10

A company may reclassify a current financial liability to a long-term one only if there is a contractual agreement in place by the reporting date to replace the financing.

Accepted Answer

A) True 
 B)False

Question 11

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?

Accepted Answer

A) 11 percent 
B) 18 percent 
C) 23 percent 
D) 14 percent

Question 12

An improvement to a company's credit rating under IFRS will lead to a reduction in the carrying amount of any financial liabilities and a gain being reported in OCI.

Accepted Answer

A) True 
 B)False

Question 13

Which one of the following items is not a liability?

Accepted Answer

A) The portion of long-term debt due within one year 
B) Advances from customers on contracts 
C) Accrued estimated warranty costs 
D) Dividends payable in shares

Question 14

Financial liabilities are initially recognized at fair value and at cost, amortized cost or fair value post-acquisition.

Accepted Answer

A) True 
 B)False

Question 15

A company had sales of $1 million.Coupons in the amount of $1 per $10 in sales were given to paying customers.History has shown that 50% of all coupons are redeemed.Which of the following statements is correct?

Accepted Answer

A) No provision is necessary. 
B) A provision for $100,000 must be recognized. 
C) A provision for $1 million must be recognized. 
D) A provision for $50,000 must be recognized.

Question 16

BRIEFLY explain how the treatment of contingencies differs under IFRS and ASPE.

Accepted Answer

The answer of BRIEFLY explain how the treatment of contingencies...

Question 17

Conceptually, liabilities constitute a present obligation as a result of a past event and entail an expected future sacrifice of assets or services.

Accepted Answer

A) True 
 B)False

Question 18

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?

Accepted Answer

A) $300 
B) $0 
C) $500 
D) $400

Question 19

An administrative fee pertaining to an unsuccessful loan application is to be immediately expensed.

Accepted Answer

A) True 
 B)False

Question 20

A gain contingency will usually not be recorded in the accounts and reported in the financial statements even though its occurrence is probable.

Accepted Answer

A) True 
 B)False

Exam 12: Financial Liabilities and Provisions

XYZ borrowed $60,000 for one year and signed an 18 percent, interest-bearing note payable.Assuming XYZ has an income tax rate of 45 percent, the net effective rate was:

Under the warranty expense approach, there should be no income statement effects for warranty repairs performed after the year of sale (assuming that accrued warranty expenses and expenditures equal one another).

Loyalty points are provided (accrued)for and reversed once the points are redeemed.

By law, a fleet of aircraft must be subject to a major overhaul every 5 years as part of its scheduled maintenance program.Which of the following statements is correct?

Adjustments to fair value relating to FVTPL liabilities will always flow through earnings.

Which of the following contingencies should be accrued in the accounts and reported in the financial statements?

A company may reclassify a current financial liability to a long-term one only if there is a contractual agreement in place by the reporting date to replace the financing.

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?

An improvement to a company's credit rating under IFRS will lead to a reduction in the carrying amount of any financial liabilities and a gain being reported in OCI.

Which one of the following items is not a liability?

Financial liabilities are initially recognized at fair value and at cost, amortized cost or fair value post-acquisition.

A company had sales of $1 million.Coupons in the amount of $1 per $10 in sales were given to paying customers.History has shown that 50% of all coupons are redeemed.Which of the following statements is correct?

BRIEFLY explain how the treatment of contingencies differs under IFRS and ASPE.

Conceptually, liabilities constitute a present obligation as a result of a past event and entail an expected future sacrifice of assets or services.

An administrative fee pertaining to an unsuccessful loan application is to be immediately expensed.

A gain contingency will usually not be recorded in the accounts and reported in the financial statements even though its occurrence is probable.