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

Question 1

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.

Answer 1

False

Question 2

Accounts Receivable pledged as collateral must be shown separately from other receivables on the face of the balance sheet.

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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 5

Accounts Receivable and Inventories must always be shown as current assets on the balance sheet.

Question 6

When material, prepaid expenses must be shown separately on the face of the balance sheet.

Question 7

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

Question 8

Investment properties under IFRS must be shown at Fair Value.

Question 9

Assets must be presented before liabilities and equities under IFRS.

Question 10

With respect to biological assets under IFRS, bearer plants are the only category that need not be measured at their fair value less costs to sell.

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

In order to classify an asset as current, it is to be converted to cash within one year or its operating cycle, whichever is longer.

Question 16

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

Question 17

Assets must be classified as current or non-current on the balance sheet.

Question 18

An investor seeking a return on invested capital would be most concerned with a company's liquidity.

Question 19

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

Question 20

Strategic investments are not considered financial assets.

Question 21

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

Question 22

ABC Inc. has an overdraft (negative) balance with Bank A and a positive balance in its account with Bank
B. These accounts may be offset.

Question 23

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

Question 24

Retained earnings appropriations are the result of decisions made by management.

Question 25

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

Question 26

For simplicity, all strategic investments may be combined into a single line item on the face of the balance sheet.

Question 27

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

Question 28

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 29

Guarantees and contingencies do not necessarily need to be accrued, but they may have to be disclosed in certain instances.

Question 30

Guarantees are always recorded as liabilities in the financial statements.

Question 31

Retained earnings restrictions and appropriation both limit the amount of dividends that a company can pay.

Question 32

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 33

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

Question 34

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 35

Non-controlling interest will appear as a component of shareholder equity on the consolidated statements when a company has subsidiaries that it does not fully own.

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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 42

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

Question 43

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

Question 44

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

Question 45

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

Question 46

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

Question 47

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 48

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

Question 49

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 50

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

Question 51

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

Question 52

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 53

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

Question 54

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

Question 55

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

Question 56

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

Question 57

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

Question 58

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 59

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

Question 60

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 longer.

Question 61

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

Question 62

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 63

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

Question 64

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

Question 65

Z corporation owed the following notes payable, which will mature during the coming year. The corporation plans to settle the notes as follows: Note payable A: Refinance by issuing a new 10-year bond.
Note payable B: Give the holder merchandise inventory.
Note payable C: Give the creditor their long-term investment in Z Corporation common shares.
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 66

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

Question 67

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 68

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 69

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

Question 70

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 71

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 72

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 73

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

Question 74

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 75

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 76

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

Question 77

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 78

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 79

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 80

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.