Corporate Financial Reporting
Chapter Exam Questions
Course Introduction
Corporate Financial Reporting explores the principles, standards, and practices involved in the preparation and interpretation of financial statements for corporate entities. The course covers key topics such as the regulatory environment, the roles of financial reporting in decision making, recognition and measurement of assets and liabilities, revenue recognition, and the disclosure requirements under international and national accounting standards. Through analysis of real-world case studies and the use of financial reports from public companies, students will develop skills in understanding and critically evaluating the financial health and performance of organizations, as well as the implications for investors, regulators, and other stakeholders.
Recommended Textbook
Intermediate Accounting Volume 2 3rd Edition by Kin Lo
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Chapter 1: Current Liabilities and Contingencies
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Sample Questions
Q1) Explain the meaning of the following terms: current assets,trade payables,expected value,deferred revenue and warranty.
Answer: Current assets: Assets that are expected to be consumed or sold within one year of the balance sheet date or the business's normal operating cycle,whichever is longer.Also includes assets held primarily for trading purposes.
Trade payables: Obligations to pay for goods received or services used.
Expected value: The value determined by weighting possible outcomes by their associated probabilities.
Deferred revenue: A non-financial obligation arising from the collection of revenue that has not yet been earned.
Warranty: A guarantee that a product will be free from defects for a specified period.
Q2) Which statement about warranties is correct?
A) Warranties sold separately are accounted for under IFRS7.
B) Warranties sold separately are accounted for under IFRS15.
C) Warranties are financial liabilities and accounted for at fair value.
D) Expected value uses a weighted average of possible outcomes.
Answer: B
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Page 3
Chapter 2: Non-Current Financial Liabilities
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Sample Questions
Q1) What is meant by the "spread" charged by banks on loans?
Answer: It is the difference between the interest it pays on customer deposits and the interest it earns on loans.
Q2) On May 1,2017,Sea Escape Ltd.purchases a new automobile for $18,000 from the dealer who provides the financing.The three-year,interest-free loan is repayable at $500 per month.The market rate of interest for similar transactions is 0.25% per month.
Required:
Prepare journal entries to record: a.the purchase of the automobile.
b.the accrual of interest and the loan payment at the end of May 2017.
Answer: a.The fair value of the note is determined using discounted cash flow analysis. PVFA(0.25%,36)= (1/0.0025)× (1-(1/0.0025)<sup>36</sup>)
PV of the note = $500 × PVFA(0.25%,36)
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b. 11ea7ef7_db32_9aff_92e1_cddc32f23f6b_TB1321_00_TB1321_00_TB1321_00_TB1321_00
*May be combined
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4
Chapter 3: Equities
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Sample Questions
Q1) Explain the meaning of "contributed capital" and "common share." What distinguishes a common share from a preferred share?
Answer: common share: An equity interest that has the lowest priority and represents the residual ownership interest in the company. contributed capital: The component of equity that reflects amounts received by the reporting entity from transactions with its owners,net of any repayments from capital. Any share that does not represent the residual interest in the company is a preferred share.Preferred shares have priority over the common shares.
Q2) Which statement about a "treasury shares" is correct?
A) No company is permitted to hold treasury shares.
B) Treasury shares have voting rights.
C) Treasury shares receive dividends.
D) There are two methods that can be used to account for treasury shares: the single-transaction method and the two-transaction method.
Answer: D
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5
Chapter 4: Complex Financial Instruments
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Sample Questions
Q1) Which statement is correct about hedge accounting?
A) Hedge accounting must be reported in profit or loss.
B) Hedge accounting must be reported in OCI.
C) The financial effects of the hedging item and instrument offset 100% in hedge accounting.
D) It permits the hedging item and the hedging instrument to be recorded in the same way.
Q2) What are the similarities and differences between forwards and futures?
Q3) A company located in Canada spends $2,000 to purchase a foreign currency futures contract to buy US$100,000 at C$1.05:US$1.00.The contract matures 110 days later.Under which of the following circumstances could the company consider this future contract to be a fair value hedge for accounting purposes?
Q4) List three common stock compensation plans and describe them.
Q5) Which method is used under ASPE to account for compound instruments?
A) Incremental method.
B) Fair value method.
C) Proportional method.
D) Book value method.
Q6) Contrast options with warrants.
Page 6
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Chapter 5: Earnings Per Share
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Sample Questions
Q1) Which statement is correct about the "share effect" on EPS?
A) This is the incremental before-tax income available to ordinary shareholders.
B) This is the incremental after-tax income available to ordinary shareholders.
C) This is the incremental number of ordinary shares outstanding before conversion.
D) This is the incremental number of ordinary shares outstanding after conversion.
Q2) Summer Surprise Ltd.(SSL)was incorporated on January 1,2018.At that time,it issued 210,000 ordinary shares; 95,000,$65,2% preferred shares "A"; and 85,000,$65,4% preferred shares "B." Net income for the year ended December 31,2018 was $500,000.SSL neither declares nor pays dividends during the year.The series A preferred shares are cumulative and the series B preferred shares are non-cumulative.Series A must be fully paid their current entitlement before any monies are paid to the Series B shareholders. Required:
Compute basic BPS.
Q3) Explain why other comprehensive income is excluded from the numerator of the EPS calculation.
Q4) Explain why private companies are not required to report EPS under according to ASPE.
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Chapter 6: Accounting for Income Taxes
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Sample Questions
Q1) Which statement is correct about the "taxes payable method"?
A) It is the accounting method used under both ASPE and IFRS.
B) It records an amount for income tax equal to the tax payments required.
C) It matches income with the associated income tax expense.
D) It records an amount for income tax equal to the net income before tax.
Q2) Which statement is true?
A) A company should carry forward losses when they have had prior years' taxable income.
B) A company might carry their tax losses forward if they have exhausted the ability to carry losses backward.
C) Carrying forward tax losses results in immediate cash flow to the company.
D) Canadian tax laws allow corporations to carry an operating loss backward for 3 years and forward indefinitely, and capital losses backward for 3 years and forward indefinitely.
Q3) Which statement is correct?
A) Financial reporting rules are generally consistent with tax reporting rules.
B) Tax rules are generally consistent the principles used in accrual accounting.
C) Tax rules generally require a higher degree of reliability than financial reporting.
D) Accounting income is generally similar to taxable income.
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Page 8
Chapter 7: Pensions and Other Employee Future Benefits
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Q1) Current service cost for a defined benefit pension plan amounted to $1,000,000.Expected income on the pension plan's assets amounted to $7,500,000,while actual income was $7,800,000.The interest on the pension obligation was $9,000,000,which matched the actuarial estimates.No past service costs arose during the year.Given this information the pension expense for the year was:
A) $500,000
B) $2,200,000
C) $2,500,000
D) $1,000,000
Q2) A company has a defined benefit pension asset of $1,050,000 at the beginning of the year.The company contributes $5,500,000 to the pension during the year and records a pension expense of $8,200,000.
Required:
Determine the value of the defined benefit pension liability at year-end.
Q3) A company has a defined benefit pension liability of $750,000 at the beginning of the year.The company contributes $2,500,000 to the pension during the year and records a pension expense of $2,200,000.
Required:
Determine the value of the defined benefit pension liability at year-end.
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Page 9
Chapter 8: Accounting for Leases
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Sample Questions
Q1) List four examples of the risks and four examples of rewards of ownership.
Q2) On May 1,2018,Janus Company entered into a ten-year lease for equipment.Annual lease payments are $5,000,payable at the beginning of each lease year (May 1).At the end of the lease,possession of the equipment will revert to the lessor.The equipment has an expected useful life of 10 years.Similar equipment could be purchased for $90,000 cash.Janus's incremental borrowing rate is 6%.The company has a April 30 year-end,and it uses straight-line depreciation for its property,plant,and equipment.
Required:
a.Prepare the journal entries relating to the lease and leased asset for Janus's fiscal year ending April 30,2019.
b.State the amounts related to the lease that would be reported on the April 30,2019 balance sheet,indicating the balance sheet classifications,account names,and amounts.
Q3) What entry is required for the lessor in a finance lease?
A) Loan receivable.
B) Rental income.
C) Interest expense.
D) Depreciation expense.
Q4) What is meant by the agency cost of leasing?
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Page 10
Chapter 9: Statement of Cash Flows
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Sample Questions
Q1) Which statement is correct?
A) Managers are more interested in the net income than the cash generated by the company.
B) Under GAAP, only the income statement is required by investors, creditors and managers.
C) All companies must have a treasury department to manage their cash resources.
D) The cash flow statement shows the capacity of the company to sustain its operations.
Q2) Briefly describe non-cash transactions and how they are reported on the statement of cash flows.
Q3) Why are "cash and cash equivalents" treated as a single unit on the cash flow statement?
Q4) What is included in "cash and cash equivalents"?
A) Cash on hand.
B) Term deposits maturing in 180 days.
C) Treasury bills maturing in 120 days.
D) Bonds of a publically traded company.
Q5) What guidance does IFRS provide with respect to reporting bank overdrafts on the statement of cash flows?
Q6) What are the two distinct components to investing activities?
Page 11
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Chapter 10: Accounting Changes
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Sample Questions
Q1) For each of the following independent scenarios,indicate the effect of the error (if any)on:
- 2016 net income
- 2017 net income
- 2017 closing retained earnings
Additional information:
- The company uses the periodic system of inventory and its fiscal year-end is December 31.
- Ignore income tax effects.
a.Your analysis of inventory indicates that inventory at the end of 2016 was understated by $20,000 due to an inventory count error.Inventory at the end of 2017 was correctly stated.
b.Invoices in the amount of $59,000 for inventory received in December 2016 were not entered on the books in 2016.They were recorded as purchases in January 2017 when they were paid.The goods were counted in the 2016 inventory count and included in ending inventory on the 2016 financial statements.
c.Goods received on consignment amounting to $99,000 were included in the physical count of goods at the end of 2017 and included in ending inventory on the 2017 financial statements.
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