Question

ACC206: Financial Reporting 3.0

1. When bonds are sold at a discount and the effective interest method is used, at each subsequent interest payment date, which of the following is true?

a. The cash paid for interest is less than the effective interest expense.

b. The cash paid for interest is equal to the effective interest expense.

c. The cash paid for interest is more than if the bonds had been sold at a premium.

d. The cash paid for interest is more than the effective interest expense.

2. B Ltd can estimate the amount of loss that will occur if a foreign government expropriates some of B Ltd’s assets in that country. Under FRS 37 Provisions, Contingent Liabilities and Contingent Assets, if the likelihood of expropriation is probable, this should be:

a. accrued as a provision but not disclosed.

b. disclosed but not accrued as a provision.

c. disclosed and accrued as a provision.

d. neither accrued as a provision nor disclosed.

3. Which of the following is true of a $1 million bond issue sold at 102?

a. Sold at a discount because the effective interest rate was lower than the coupon rate.

b. Sold at a premium because the coupon interest rate was higher than the effective interest rate.

c. Sold at a discount because the coupon interest rate was lower than the effective interest rate.

d. Sold at a premium because the coupon interest rate was lower than the effective interest rate.

4. When bonds are sold at a premium and the effective interest method is used, at each subsequent interest payment date, which of the following is true?

a. The cash paid for interest is more than the effective interest expense.

b. The cash paid for interest is equal to the effective interest expense.

c. The cash paid for interest is less than the effective interest expense.

d. The cash paid for interest is less than if the bonds had been sold at a discount.

5. Under FRS 37 Provisions, Contingent Liabilities and Contingent Assets, note disclosure is required for material potential losses when the loss is at least possible:

a. only if the amount is known or reliably estimable.

b. unless the amount is not reliably estimable.

c. only if the amount is known.

d. even if the amount is not reliably estimable.

6. Under FRS 37 Provisions, Contingent Liabilities and Contingent Assets, which of the following statements is true?

a. Provisions shall not be recognised for future operating losses.

b. All the listed statements are true.

c. The present obligation under an onerous contract shall be recognised and measured as a provision.

d. Changes in management structure is an example of a restructuring cost.

7. Under FRS 37 Provisions, Contingent Liabilities and Contingent Assets, contingent assets usually are recognised in a company's income statement when:

a. The gain is probable and the amount can be reliably estimated.

b. the gain is virtually certain.

c. the amount can be reliably estimated.

d. the gain is possible and the amount can be reliably estimated.

8. How would the carrying amount of bonds payable be affected by the amortisation of the bond premium and bond discount respectively?

a. The amortisation of the bond premium has no effect on the carrying amount but the amortisation of the bond discount increases the carrying amount.

b. The amortisation of the bond premium decreases the carrying amount but the amortisation of the bond discount increases the carrying amount.

c. The amortisation of the bond premium increases the carrying amount but the amortisation of the bond discount decreases the carrying amount.

d. The amortisation of the bond premium and bond discount both have no effect on the carrying amount.

9. Which of the following statements is true?

a. The amortisation of the bond premium increases the carrying amount but the amortisation of the bond discount decreases the carrying amount.

b. The amortisation of the bond premium and bond discount both have no effect on the carrying amount.

c. None of the listed options.

d. The amortisation of the bond premium has no effect on the carrying amount but the amortisation of the bond discount increases the carrying amount.

10. B Ltd can estimate the amount of loss that will occur if a foreign government expropriates some of B Ltd’s assets in that country. Under FRS 37 Provisions, Contingent Liabilities and Contingent Assets, if the likelihood of expropriation is remote, this should be:

a. disclosed but not accrued as a provision.

b. disclosed and accrued as a provision.

c. accrued as a provision but not disclosed.

d. neither accrued as a provision nor disclosed.

11. Which of the following statements is true under FRS 10 Events after the Reporting Period?

a. Events after the reporting period can be favourable or unfavourable.

b. All events after the reporting period are non-adjusting events.

c. All events after the reporting period are adjusting events.

d. None of the listed statements is true.

12. Under FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors, which of the following is an example of a change in accounting estimate?

a. A change in inventory costing methods.

b. None of the listed options.

c. A change in the estimated useful life of a depreciable asset.

d. A change from the cost model to the fair value model for the measurement of investment properties.

13. Under FRS 10 Events after the Reporting Period, events after the reporting period are those events that occur

a. between the end of the reporting period and the date when the financial statements are authorised for issue.

b. within 45 days of the end of the reporting period.

c. between the end of the reporting period and the date when the financial statements are approved at the annual general meeting.

d. within 60 days of the end of the reporting period.

14. Which of the following disclosures relating to the date of authorisation for issue of financial statements are required under FRS 10 Events after the Reporting Period?

a. Disclose who give the authorisation for issue.

b. Disclose whether the firm’s owners or others have the power to amend the financial statements after issue.

c. Disclose the date when the financial statements were authorised for issue.

d. All the disclosures listed are required.

15. Which of the following is generally not an example of an adjusting event under FRS 10 Events after the Reporting Period?

a. Bankruptcy of a customer who has an outstanding receivable at the firm.

b. Sale of inventories after the reporting period that gives evidence of their net realisable value at the end of the reporting period.

c. Destruction of a manufacturing plant that was still in use by the firm at the end of the reporting period, by a fire after the reporting period.

d. All the events are adjusting events.

16. Under FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors, when an entity has not applied a new accounting standard or interpretation that has been issued but is not yet effective, the entity

a. is not required to disclose this fact and known or reasonably estimable information relevant to assessing the possible impact that application of the new accounting standard and interpretation will have on the entity’s financial statements in the period of initial application.

b. is required to disclose this fact and known or reasonably estimable information relevant to assessing the possible impact that application of the new accounting standard and interpretation will have on the entity’s financial statements in the period of initial application.

c. is required to disclose this fact but not necessary to disclose any known or reasonably estimable information relevant to assessing the possible impact that application of the new accounting standard and interpretation will have on the entity’s financial statements in the period of initial application.

d. is required to disclose reasons for not complying with the new accounting standard.

17. Under FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors, which of the following items should be reported as a prior-period adjustment?

a. Payment of warranty expense previously provided for.

b. Correction of an error in depreciation from last year.

c. Receipt of the proceeds of an accounts receivable recorded last year.

d. Payment of taxes for a tax form filed last year.

18. The accounts receivable owed by Customer A as at the firm’s financial year ending 31 December 20X1 was $100. After the financial year-end and prior to the date of authorisation for issue of the accounts, Customer A went into severe financial difficulty. It is unlikely for the firm to collect the outstanding receivable from Customer A. What reasonable accounting actions should the firm undertake for the financial year ending 31 December 20X1 under FRS 10 Events after the Reporting Period?

a. None of the listed actions is correct.

b. Disclose the impairment of accounts receivable if it is material.

c. Impair the accounts receivable if the firm has not done so.

d. No accounting adjustment or disclosure is required.

19. Under FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors, which of the following changes would not be accounted for prospectively?

a. A change in net realisable value of inventory.

b. None of the listed options.

c. A change in inventory costing methods.

d. A change from the straight-line to double-declining balance depreciation.

20. Under FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors, which of the following is an example of a change in accounting policy?

a. None of the listed options.

b. A change in inventory costing methods.

c. A change in the estimated useful life of a depreciable asset.

d. A change in the residual value of a depreciable asset.

Answer 1

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1. When bonds are sold at a discount and the effective interest method is used, at each subsequent interest payment date, which of the following is true?

a. The cash paid for interest is less than the effective interest expense.

2. B Ltd can estimate the amount of loss that will occur if a foreign government expropriates some of B Ltd.'s assets in that country. Under FRS 37 Provisions, Contingent Liabilities and Contingent Assets, if the likelihood of expropriation is probable, this should be:

b. disclosed but not accrued as a provision.

Because provision is only taken if obligation has risen in past so only disclosure is required.

3. Which of the following is true of a $1 million bond issue sold at 102?

b. Sold at a premium because the coupon interest rate was higher than the effective interest rate.

4. When bonds are sold at a premium and the effective interest method is used, at each subsequent interest payment date, which of the following is true?

a. The cash paid for interest is more than the effective interest expense.

5. Under FRS 37 Provisions, Contingent Liabilities and Contingent Assets, note disclosure is required for material potential losses when the loss is at least possible:

d. even if the amount is not reliably estimable.

6. Under FRS 37 Provisions, Contingent Liabilities and Contingent Assets, which of the following statements is true?

b. All the listed statements are true.

7. Under FRS 37 Provisions, Contingent Liabilities and Contingent Assets, contingent assets usually are recognized in a company's income statement when:

d. the gain is possible and the amount can be reliably estimated.

8. How would the carrying amount of bonds payable be affected by the amortization of the bond premium and bond discount respectively?

b. The amortization of the bond premium decreases the carrying amount but the amortization of the bond discount increases the carrying amount.

9. Which of the following statements is true?

b. The amortization of the bond premium decreases the carrying amount but the amortization of the bond discount increases the carrying amount.

10. B Ltd can estimate the amount of loss that will occur if a foreign government expropriates some of B Ltd.'s assets in that country. Under FRS 37 Provisions, Contingent Liabilities and Contingent Assets, if the likelihood of expropriation is remote, this should be:

b. disclosed but not accrued as a provision.

Because provision is only taken if obligation has risen in past so only disclosure is required.

11. Which of the following statements is true under FRS 10 Events after the Reporting Period?

a. Events after the reporting period can be favorable or unfavorable.

12. Under FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors, which of the following is an example of a change in accounting estimate?

c. A change in the estimated useful life of a depreciable asset.

13. Under FRS 10 Events after the Reporting Period, events after the reporting period are those events that occur

a. between the end of the reporting period and the date when the financial statements are authorized for issue.

14. Which of the following disclosures relating to the date of authorization for issue of financial statements are required under FRS 10 Events after the Reporting Period?

c. Disclose the date when the financial statements were authorized for issue.

15. Which of the following is generally not an example of an adjusting event under FRS 10 Events after the Reporting Period?

d. All the events are adjusting events.

16. Under FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors, when an entity has not applied a new accounting standard or interpretation that has been issued but is not yet effective, the entity

c. is required to disclose this fact but not necessary to disclose any known or reasonably estimable information relevant to assessing the possible impact that application of the new accounting standard and interpretation will have on the entity’s financial statements in the period of initial application.

17. Under FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors, which of the following items should be reported as a prior-period adjustment?

b. Correction of an error in depreciation from last year.

18. The accounts receivable owed by Customer A as at the firm’s financial year ending 31 December 20X1 was $100. After the financial year-end and prior to the date of authorization for issue of the accounts, Customer A went into severe financial difficulty. It is unlikely for the firm to collect the outstanding receivable from Customer A. What reasonable accounting actions should the firm undertake for the financial year ending 31 December 20X1 under FRS 10 Events after the Reporting Period?

c. Impair the accounts receivable if the firm has not done so.

19. Under FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors, which of the following changes would not be accounted for prospectively?

d. A change from the straight-line to double-declining balance depreciation.

20. Under FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors, which of the following is an example of a change in accounting policy?

b. A change in inventory costing methods.