Deck 4: Statements of Financial Position and Changes in Equity; Disclosure Notes

Question 1

A statement of changes in Equity is mandatory under both IFRS and ASPE.

Answer 1

False

Question 2

Under IFRS,balance sheet items may be classified as current/non-current or by order of liquidity (or reverse liquidity).

Answer 2

True

Question 3

Owners' Equity items are classified and presented based on time to maturity.

Answer 3

False

Question 4

The balance sheet reports on the operations of the company for a given period of time.

Question 5

A statement of compliance and summary of significant accounting policies are often among the first notes to be disclosed in annual report.

Question 6

A restriction on Retained Earnings is usually the result of a contractual or legal obligation and is intended to limit the amount of dividends paid.

Question 7

Liabilities such as contingent liabilities that are not probable,or are probable but not measurable,do not qualify for recognition in the financial statements.

Question 8

Monetary assets should be disclosed at their fair value on the Balance Sheet.

Question 9

For financial statement purposes,a company's operating cycle is deemed to be at least one year.

Question 10

The Return on Assets (ROA) and Return on Equity (ROE) ratios measure a company's liquidity.

Question 11

Biological assets,Investment Properties and Provisions must all be shown separately under IFRS (wherever applicable) but not under ASPE.

Question 12

Deferred Income Tax Assets and Liabilities must be presented as non-current under IFRS.

Question 13

Current liabilities are short-term liabilities whose liquidation is reasonably expected to require the use of current assets or the creation of other current liabilities.

Question 14

The close family of a company's president owns a small (insignificant) amount of the company's shares.The president's family is deemed to be related parties and these holdings should be disclosed.

Question 15

Monetary items are usually fixed in amount while non-monetary items are not.

Question 16

By grouping assets in decreasing order of liquidity,the accounts receivable account will almost always be the first item on the balance sheet.

Question 17

In financial reporting it is improper to offset current assets with current liabilities unless there is a legal right of offset.

Question 18

Guarantees are always recorded as liabilities in the financial statements.

Question 19

Assets must be presented before liabilities and equities under IFRS.

Question 20

A long-term bond payable is reported on the balance sheet at its maturity amount plus any unamortized premium or minus any unamortized discount.

Question 21

Investments being held-to-maturity must be accounted for using Amortized Cost under IFRS.

Question 22

Interest-bearing investments with a maturity within six months of the balance sheet date are effectively cash equivalents.

Question 23

Most balance sheets do not have a separate caption "Deferred Credits" because they are disclosed under liabilities or owners' equity.

Question 24

Deferred charges are distinguished from prepaid expenses on the basis of the time over which their benefits will be realized.

Question 25

Appropriated retained earnings are those earnings that have been set aside for a specific purpose (other than the payment of dividends).

Question 26

"Reserve for depreciation" is an appropriate alternative designation for "accumulated depreciation".

Question 27

All assets having any future benefit to the company will be disclosed on the Balance Sheet.

Question 28

Current assets are cash and those items,which are reasonably expected to be realized in cash,or to be sold or consumed during the normal operating cycle or within one year from the balance sheet,date,whichever is shorter.

Question 29

Contingent gains are never disclosed in the notes to the financial statements,no matter how likely.

Question 30

Held-for-sale assets are carried at the lower of amortized cost or estimated net realizable value.

Question 31

Counter-balancing inventory errors have no effect of the statement of comprehensive income.

Question 32

Subsequent events are those which occur after the release of the financial statements.

Question 33

Accounting errors and policy changes are handled retrospectively,with an adjustment to opening Retained Earnings to correct for the effects of these,while changes in accounting estimates are handled prospectively.

Question 34

Under ASPE,Biological Assets are shown separately from Property,Plant & Equipment at their Fair Value less costs to sell.

Question 35

The designation "reserve for bad debts" is an appropriate alternative title for "allowance for doubtful accounts".

Question 36

The shareholders' equity section of a consolidated statement of financial position shows the shareholder equity attributable to the parent.

Question 37

The declaration (but not payment) of common share dividends will have an adverse effect on ROA (Return on Assets).

Question 38

Under ASPE,a change in accounting policy may be voluntary or compulsory.

Question 39

Contingent losses should only be accrued if it is likely that a loss will arise due to events that existed at the date of the financial statements and the loss can be reasonably estimated.

Question 40

Corrections of errors made in prior periods as well as the cumulative effect of retrospective changes in accounting policy are both shown as an after-tax adjustment to opening retained earnings.

Question 41

Other Contributed Capital can arise when shares are retired for more than the original amount paid for the shares.

Question 42

Which of the following would be non-adjusting subsequent event(s)?

A)An insure fire loss shortly after the company's year-end.
B)Bankruptcy filing by the company's major customer, which accounted for 60% of the company's receivables at the balance sheet date.
C)The company announces restructuring plans shortly before its year-end.
D)Sale of goods to Company with good current ratio.

Question 43

The balance sheet and cash flow statement represent the assets,liabilities,owners' equity,and cash flows at a specific point in time; whereas,the income statement encompasses a specific period of time.

Question 44

Capital transactions are essentially transaction between owners and as a result,must never appear on the income statement.

Question 45

The cash surrender value of an insurance policy should be classified on the balance sheet under the caption:

A)capital assets.
B)other assets.
C)current assets.
D)investments and funds.

Question 46

Accumulated Other Comprehensive Income is essentially a deferred credit which appears under the Liabilities section of the Balance Sheet.

Question 47

A corporation paid a six-year insurance premium on January 1,year 1,for $12,000.It recorded the prepayment in two asset accounts--one with a $2,000 debit balance and one with a $10,000 debit balance.Under which of the following captions should the account be with the $10,000 balance be classified on a balance sheet dated January 1,year 1?

A)Capital assets
B)Other assets
C)Deferred charges
D)Current assets

Question 48

Z corporation owed the following notes payable,which will mature during the coming year.The corporation plans to settle the notes as follows: Which note is properly classified as a current liability?

A)Note payable A
B)Note payable B
C)Note payable C
D)All are current liabilities.

Question 49

A contingency is an event or transaction that will occur only if some other uncertain event happens.

Question 50

Public companies must identify their various operating segments when each of them contributes to at least what percentage of total revenues?

A)50%.
B)60%.
C)10%.
D)100%.

Question 51

In general,financial instruments should be classified according to their form,regardless of the instrument's substance.

Question 52

Related party transactions,not in the normal course of business,must be recorded at:

A)book value.
B)fair value.
C)amortized cost.
D)carrying value.

Question 53

Errors are normally unintentional,but may on occasion be intentional.

Question 54

When a company depends heavily on one or a few customer(s) for its business,this must be disclosed in the notes to the financial statements.

Question 55

The statement of significant accounting policies,which is included in the notes to the financial statements,must include reasons for the selection of one generally accepted accounting method over another generally accepted accounting method.

Question 56

Certain types of contingencies neither need to be accrued nor disclosed in the notes to the financial statements.

Question 57

All items in Accumulated Other Comprehensive Income must eventually be recycled to the income statement.

Question 58

A balance sheet is not particularly useful for determining the current market value of the assets of an entity.

Question 59

Which of the following must a company NOT disclose with regards to any financial instruments which it may possess?

A)Amortized cost.
B)Accounting policy used for reporting purposes.
C)The fair value of each class of financial asset or liability.
D)The nature and extent of risks arising from the instruments.

Question 60

Only unrealized changes in the fair values of certain assets or liabilities are included in Accumulated Other Comprehensive Income.

Question 61

Which of the following should not be considered as a current asset in the balance sheet?

A)The cash surrender value of a life insurance policy carried by a corporation, the beneficiary, on its president.
B)Marketable securities purchased with cash as a short-term investment.
C)Instalment notes receivable due within 12 months in accordance with normal trade practice.
D)Prepaid taxes which cover assessments of the following operating cycle of the business.

Question 62

Accounts receivable are reported at:

A)Cost.
B)Current value.
C)Fair market value.
D)Net realizable value.

Question 63

During the current year,a corporation purchased a parcel of land located in downtown Winnipeg.The company is not currently operating in Manitoba.However,the management expects to be operating at that location within twenty years.If the company does not buy the land now,it would be unable to find suitable land when needed later.The land should be classified on the current balance sheet under the caption:

A)Capital assets.
B)Other assets.
C)Deferred charges.
D)Investments.
E)Current assets.

Question 64

Which of the following need not appear as a stand-alone item on the statement of financial position under IFRS?

A)Liabilities forming part of a disposal group (held-for-sale)
B)Deferred Tax Liabilities
C)Provisions
D)Asset Retirement Obligations

Question 65

Preferred shares which guarantee the shareholder only a fixed annual dividend should be classified as:

A)Expense.
B)equity.
C)both debt and equity.
D)deferred charges.

Question 66

A company's main inventory warehouse burned down a few days after the company's fiscal year end - well before the financial statements for the last year were issued.The company's insurer will only cover a portion of the estimated losses.Given this event,what should the company do from an accounting/financial reporting standpoint?

A)Will not disclose the event and the estimated amount of the loss in a note to the financial statements.
B)No action is required.
C)Both disclose the event and the estimated amount of the loss in a note to the financial statements and accrue for the estimated amount of the loss.
D)Disclose the event as part of management's M, D & A (Management Discussion and Analysis).

Question 67

Which of the following MAY NOT appear on a company's statement of financial position?

A)Accounts receivable
B)Prepaid insurance
C)Equipment under long-term capital leases
D)Short-term investment in common stock

Question 68

Where on the statement of financial position would a company's total comprehensive income for the year be included under IFRS?

A)The entire amount will be included in Retained Earnings.
B)The entire amount will be included in Accumulated Comprehensive Income.
C)The amount will be split; Net income will be included in Retained Earnings and Other Comprehensive Income will be included in Accumulated Other Comprehensive Income.
D)The entire amount will be included in Contributed Capital.

Question 69

Bonds payable due in six months and for which an adequate bond sinking fund exists is not a current liability because:

A)the sinking fund is a current asset.
B)of the length of the operating cycle.
C)they are due within six months.
D)the bonds will be settled with an asset that is not a current asset.

Question 70

When the account receivable of an individual customer has a credit balance of a material amount,this amount:

A)must be included separately in the liability section of the balance sheet.
B)may be deducted from the debit balances in other customers' accounts on the balance sheet.
C)may be shown under "credit balances of customers' accounts" in the current asset section of the balance sheet.
D)should be omitted from the current balance sheet.

Question 71

Which of the following is not a negative element under the "capital assets,tangible" classification?

A)Accumulated depletion of mineral-bearing property
B)Accumulated depreciation of paved parking lot
C)Accumulated depreciation of buildings
D)Reserve for plant expansion

Question 72

Prepaid insurance usually should be classified on the balance sheet under the caption:

A)Capital assets.
B)Other assets.
C)Current assets.
D)Investments and funds.
E)Deferred charges.

Question 73

Ambo Inc.earned $200,000 for the current year.This means

A)Ambo's total assets increased $200,000 during the year
B)Ambo's earnings increased Ambo's net assets $200,000 during the year
C)Ambo's cash increased $200,000 during the year
D)Ambo's retained earnings must be $200,000 more at December 31 than it was at January 1

Question 74

Which of the following would NOT appear under the Equity section of a Balance Sheet prepared under ASPE?

A)Share Capital.
B)Retained Earnings.
C)Accumulated Other Comprehensive Income.
D)Contributed Capital.

Question 75

Deferred charges:

A)are current assets.
B)are expenses incurred but not yet paid.
C)are items such as the prepayment of rent on an office.
D)involve a longer period of time than do prepaid expenses.

Question 76

Assets and liabilities on the balance sheet are valued at:

A)Historical cost.
B)Fair value.
C)Net realizable value.
D)all of these.

Question 77

The income statement is related to the balance sheet because:

A)Income increases owners' equity and total assets (or reduces liabilities).
B)Income increases only owners' equity.
C)Assets and expenses have debit balances.
D)Liabilities and revenue have credit balances.

Question 78

If the operating cycle of a business is fifteen months,which of the following statement is true?

A)Cash set aside for a purchase of equipment will be shown as a current asset.
B)A note receivable that is due one year and two months from the balance sheet date will be shown as a current asset.
C)Balance sheets should be prepared more often than income statements.
D)A note, that is payable by the business two years from the balance sheet date, will be shown as a current liability.

Question 79

ABC Inc's largest customer declared bankruptcy shortly after the company's fiscal year end but well before the financial statements for the last year were issued.The company accounted for roughly 80% ABC's revenues.On the date of bankruptcy,the company owed ABC Inc.$500,000 for purchases it made from ABC Inc during the preceding fiscal year.Given the above,what should the company do from an accounting/financial reporting standpoint?

A)Will not disclose the event and the estimated amount uncollectible in a note to the financial statements.
B)Disclose the event as part of management's M, D & A (Management Discussion and Analysis).
C)Both disclose the event and the estimated amount uncollectible in a note to the financial statements and accrue for the estimated amount uncollectible.
D)No action is required.

Question 80

Which item below is not a current asset?

A)Prepaid expense
B)Unearned revenue
C)Short-term investment
D)Work-in-process inventory