Question 1

For a large population,the best estimate for the amount of a provision that must be recognized is the most likely outcome with respect to the expected value and cumulative probabilities.

Accepted Answer

A) True 
 B)False

Question 2

XY Company owed a $45,489 due on January 1,2015.An agreement was reached to pay it off in five equal annual payments,starting on December 31,2015.The interest rate was 10 percent.The total amount of interest paid under the terms of the agreement was (round annual payment to nearest $1):

Accepted Answer

A)  $25,000 
B)  $22,745 
C)  $14,511 
D)  $6,000

Question 3

Loan guarantees must be provided for; the amount of the provision is the probability of payout multiplied by the fair value of the loan guarantee.

Accepted Answer

A) True 
 B)False

Question 4

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 5

ABC Inc.has 50 pending lawsuits for which it may be found liable.The expected value (sum of the probabilities of the outcomes multiplied by their respective payouts)amounts to $100,000.However,the company's controller believes that the most likely outcome will be a payout of $120,000.Which of the following statements pertaining to the accrual of the provision is correct?

Accepted Answer

A)  There is a large population of lawsuits, so a provision of $100,000 must be accrued. 
B)  There is a large population of lawsuits, so a provision of $120,000 must be accrued. 
C)  There is a small population of lawsuits, so a provision of $100,000 must be accrued. 
D)  There is a small population of lawsuits, so a provision of $120,000 must be accrued.

Question 6

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

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Contingent liabilities will or will not become actual liabilities depending on:

Accepted Answer

A)  Whether they are probable and estimable 
B)  The degree of uncertainty 
C)  The present condition suggesting a liability 
D)  The outcome of a future event

Question 9

At December 31,2015,ABC Company has the following three separate lawsuits pending against it: Suit A-Plaintiffs seek damages of $40,000; Suit B-Plaintiff seeks damages of $200,000; and Suit C-Plaintiff seeks damages of $20,000.
ABC management and legal counsel have made the assessments indicated below.For each suit,taking into account the assessment,you are to (a)give the accrual entry if it is required (if not,state why)and (b)indicate whether a disclosure note is required and explain the reason.
CASE A-Remote that ABC will lose the suit.
(a)Accrual entry:
(b)Disclosure note: _______ Yes ______ No.Explanation:
CASE B-Reasonably possible that ABC will lose; reasonable estimate of damages $4,000.
(a)Accrual entry:
(b)Disclosure note: ______ Yes _______ No.Explanation:
CASE C-Probable that ABC will lose; reasonable estimate of damages $10,000.
(a)Accrual entry:
(b)Disclosure note: ______ Yes ______ No.Explanation:

Accepted Answer

The answer of At December 31,2015,ABC Company has the following...

Question 10

Under IFRS,a continuity schedule must be provided for both provisions and contingencies.

Accepted Answer

A) True 
 B)False

Question 11

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

Question 12

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 13

You are an investor and have just purchased a bond on July 1 which pays interest every March 1 and September 1.When you receive your first interest cheque,you will receive and have earned how many months interest?

Accepted Answer

A)  Choice 1 
B)  Choice 2 
C)  Choice 3 
D)  Choice 4 
E)  Choice 5

Question 14

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

Question 15

On September 1,2014,XYZ borrowed $100,000 on a 9%,two-year,note payable.Simple interest is payable on August 31,2015 and 2016.XYZ's reporting year ends December 31 and the company does not use reversing entries for interest.The required entry on August 31,2001,is:

Accepted Answer

The answer of On September 1,2014,XYZ borrowed $100,000 on a...

Question 16

A short-term note payable may include all of the following except:

Accepted Answer

A)  Trade notes payable. 
B)  Non trade notes payable. 
C)  A current portion of a long-term liability. 
D)  Unearned revenue.

Question 17

A contingency may become a provision if the likelihood of the contingent event greatly increases.

Accepted Answer

A) True 
 B)False

Question 18

Ryan Company borrow $45,000 US when the exchange rate for US $1.00 is Cdn.$1.46.When the debt was repaid the exchange rate changes to US $1.00 = Cdn.$1.38.Ryan Company records the amount on the date of exchange as:

Accepted Answer

A)  A foreign exchange loss of $3,600. 
B)  A foreign exchange gain of $3,600. 
C)  A foreign exchange gain of $62,100. 
D)  A foreign exchange loss of $62,100.

Question 19

A lawsuit in progress wherein the defendant will probably be found guilty would likely be accounted for as a provision.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 1: The Framework for Financial Reporting

For a large population,the best estimate for the amount of a provision that must be recognized is the most likely outcome with respect to the expected value and cumulative probabilities.

XY Company owed a $45,489 due on January 1,2015.An agreement was reached to pay it off in five equal annual payments,starting on December 31,2015.The interest rate was 10 percent.The total amount of interest paid under the terms of the agreement was (round annual payment to nearest $1) :

Loan guarantees must be provided for; the amount of the provision is the probability of payout multiplied by the fair value of the loan guarantee.

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

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.

Contingent liabilities will or will not become actual liabilities depending on:

Under IFRS,a continuity schedule must be provided for both provisions and contingencies.

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

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

You are an investor and have just purchased a bond on July 1 which pays interest every March 1 and September 1.When you receive your first interest cheque,you will receive and have earned how many months interest?

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?

On September 1,2014,XYZ borrowed $100,000 on a 9%,two-year,note payable.Simple interest is payable on August 31,2015 and 2016.XYZ's reporting year ends December 31 and the company does not use reversing entries for interest.The required entry on August 31,2001,is:

A short-term note payable may include all of the following except:

A contingency may become a provision if the likelihood of the contingent event greatly increases.

Ryan Company borrow $45,000 US when the exchange rate for US $1.00 is Cdn.$1.46.When the debt was repaid the exchange rate changes to US $1.00 = Cdn.$1.38.Ryan Company records the amount on the date of exchange as:

A lawsuit in progress wherein the defendant will probably be found guilty would likely be accounted for as a provision.