Question

1. Which of the following describe compensating balances? (Select all that apply.)

a) A specified balance a borrower of a loan is asked to maintain in a low-interest account at the bank

b) A specified balance a borrower of a loan is asked to maintain in a noninterest-bearing account at the bank

c) Funds set aside for a future plant expansion

d) A sinking fund established in connection with debt instruments

2. Which of the following methods are used by managers to manipulate earnings quality?

a)Classifying cash flows associated with selling accounts receivable in the operating section of the statement of cash flows

b) Adopting more liberal credit policies

c) Using a discretionary accrual such as bad debt expense

d) Using a “bill-and-hold” strategy

3.Which of the following statements about the accounting for transfers of receivables under IFRS are true?

a)The focus is simply on whether control of assets has shifted from transferor to transferee.

b) Transfers of receivables sometimes are treated as a sale of receivables.

c) Transfers of receivables sometimes are treated as a secured borrowing.

d) Transfer of substantially all the risk and rewards of ownership is an important consideration.

Answer 1

Answer 1.

option a and b is correct

because both fulfils the definition of compensating balance where as option c and d includes funds set aside which are not type of compensating balance

Answer 2.

option a, c and d is correct

As all the three option will diminish the earning quality but credit policies is related to sales

Answer 3.

option b, c  and d is correct

As all the three aoption deals with transfers, there is no focus on assets as mentioned in point a.