Question

1- Under IFRS, which of the following is generally not a guideline for recognizing revenue?

The transaction price is determinable.

When (or as) the company satisfies the performance obligation.

The contract is identified with the client.

Collection is reasonably assured.

2- If Bee Corp. fails to adjust the Unearned Rent account for rent that has been earned, what effect will this have on that month’s financial statements?

Liabilities will be understated and revenues will be understated.

Assets will be understated and revenues will be understated.

Assets will be overstated and revenues will be understated.

Liabilities will be overstated and revenues will be understated.

3- At the end of the current year, the required adjusting entry for depreciation on equipment was omitted. Which of the following statements is true regarding the current year’s financial statements?

Retained earnings will be understated.

Total assets will be understated.

The statement of financial position and income statement will be misstated but the statement of changes in equity will be correct.

Net income will be overstated.

4- Failure to prepare an adjusting entry at the end of a period to record accrued revenue would cause

net income to be overstated.

an understatement of revenues and an understatement of liabilities.

an understatement of revenues and an overstatement of liabilities.

an understatement of assets and an understatement of revenues.

5- Which permanent account is affected by the closing entries?

Cash

Common Shares

Retained Earnings

Income Summary

Answer 1

1.

The correct answer is

Option D Collection is reasonably assured

IFRS gives five step model framework
-Identify contract with customer
-Identify performance obligation in the contract
-Determine transaction price
-Allcoate transaction price to performance obligation
-Recognized revenue as or when the entity satisfies a performance obligation

2.

Liabilities will be overstated and revenues will be understated

The correct entry would be
Unearned rent revenue
Rent revenue

Unearned rent revenue is a liability. Not recording this would mean it is not reduced hence overstated.
Rent revenue is a revenue account. Not recording this would mean revenues are understated.

3.

Net Income will be overstated

Depreciation is an expense. If an expense is not recorded, Net Income is higher or in other words OVERSTATED

4.

The correct answer is Understatement of Assets and Understatement of Revenues

Entry would be
Receivable Debit
Accrued revenue credit

Receivable is an asset. No debit to asset means it is lower hence understated.
Since revenue is also not recorded, it would mean understatement of revenues.

5.

The correct answer is RETAINED EARNINGS

Cash and common shares are not directly affected by CLOSING ENTRIES
Income summary is NOT a permanent account