Question

16. A company places a $ 1.00 discount coupon inside each box of its product. During 2020 the company sold 1,000,000 units (boxes) of the product. Coupons can be used on any date in 2021. The company will recognize an expense for coupons:
a. In 2020 for $ 1,000,000
b. In 2020 for an estimate of the number of coupons to be redeemed
c. In 2021 for $ 1,000,000
d. In 2021 for the number of coupons redeemed

17. A contingent gain:
a. Not recognized
b. It is recognized if it is probable
c. It is recognized if it is probable and can be reasonably estimated
d. It is optional to recognize it when it is probable and can be reasonably estimated

18. A company was sued. Your legal advisor informs you that you will likely have to pay compensation between $ 200,000 and $ 700,000. No number in this range is more likely than the others. What amount should the company present as contingent debt in its statement of situation?
US GAAP               IFRS
a. $ 200,000           $ 200,000
b. $ 200,000           $ 700,000
c. $ 200,000           $ 450,000
d. $ 450,000           $ 450,000

19. A company has a current ratio of 2.26 ($ 2.26 in current assets for every $ 1 in current debt. So, the company pays a current debt using cash. As a result of paying that current debt, the “current ratio” of the company:
a. Stays at 2.26
b. It will be higher than 2.26
c. It will be lower than 2.28
d. It cannot be determined if we do not know the amount of the debt paid.

20, One company estimated its 2010 sales-related warranty obligation to be $ 160,000. During 2010 the company incurred $ 40,000 in parts and labor to honor the guarantees of the products sold in said year. In the 2010 financial statements the expense and guarantee obligation must be:
Spending. Obligation
a. $ 40,000 $ 160,000
b. $ 40,000 $ 120,000
c. $ 200,000 $ 160,000
d. $ 160,000 $ 120,000

Answer 1

Answers:

16. (d) in 2021 for the number of coupons redeemed.: this is because there is no past event and the liability to provide discount is only when it is redeemed.

17. (a) not recognised ; as it it recognised only when realised as per US GAAP

18. (c) US GAAP $ 200000 (low end range)

IFRS $ 450000 (mid point range)

19.(b) it will be heigher than 2.26 as now the denominator will be lesser than before as compared to the numerator

20. (b) Spending $40000 and Obligation $ 120000