Corporate Financial Reporting Practice Exam - 935 Verified Questions

Corporate Financial Reporting Practice Exam

Course Introduction

Corporate Financial Reporting is an essential course that focuses on the principles and practices of preparing, presenting, and analyzing the financial statements of corporations. The course covers key topics such as accounting standards, revenue recognition, income measurement, asset and liability valuation, and disclosure requirements. Students will learn to interpret and evaluate financial reports to provide meaningful information for decision-making by various stakeholders, including investors, regulators, and management. Through real-world case studies and practical exercises, the course equips students with the analytical skills necessary to understand the financial health and performance of corporations in compliance with legal and regulatory frameworks.

Recommended Textbook

Intermediate Accounting 2nd Edition Volume II by Kin

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Chapter 11: Current Liabilities and Contingencies

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Q1) Which of the following characteristic is required for a liability under IFRS Framework?

A)Arises from a past obligation.

B)Is a present obligation.

C)Is an unknown obligation.

D)Is a future obligation.

Q2) What are the three broad categories of liabilities?

Q3) Which statement about warranties is correct?

A)Warranties sold separately are accounted for under IAS37.

B)Warranties sold separately are accounted for under IAS18.

C)Warranties are financial liabilities and accounted for at fair value.

D)Expected value uses a weighted average of possible outcomes.

Q4) Which statement about deferred revenue is correct?

A)Deferred revenue is a financial liability.

B)Deferred revenue is a non-financial liability.

C)Deferred revenue is a held for trading financial liability.

D)Deferred revenue arises when the contract is signed.

Q5) Explain the difference between "probable," "possible," and "remote" under IFRS.

Q6) Explain the meaning of the following terms: current assets,trade payables,expected value,deferred revenue and warranty.

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Chapter 12: Non-Current Financial Liabilities

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Q1) Legally Yours,a law firm,sells $8,000,000 of four-year,8% bonds priced to yield 6.6%.The bonds are dated January 1,2018,but due to some regulatory hurdles are not issued until March 1,2018.Interest is payable on January 1 and July 1 each year.The bonds sell for $8,388,175 plus accrued interest.

In mid-June,Legally Yours earns an unusually large fee of $11,000,000 for one of its cases.They use part of the proceeds to buy back the bonds in the open market on July 1,2018 after the interest payment has been made.Legally Yours pays a total of $8,456,234 to reacquire the bonds and retires them.

Required:

Prepare journal entries to record:

a.The issuance of the bonds-assume that Legally Yours has adopted a policy of crediting interest expense for the accrued interest on the date of sale.

b.Payment of interest and related amortization on July 1,2018.

c.Reacquisition and retirement of the bonds.

Q2) Why do companies sell notes directly to the investing public?

Q3) What does an "AAA" credit rating mean?

Q4) What are the reasons for issuing bonds rather than using a bank loan?

Q5) Explain how non-current liabilities are measured after initial recognition.

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Chapter 13: Equities

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Q1) Assume that a company issued 10,000 shares for $30/share.What entry would be required to record the repurchase and cancellation of 1,000 shares at $28/share?

A)Debit to common shares for $28,000

B)Debit to common shares for $30,000

C)Credit to contributed surplus for $29,000

D)Credit to contributed surplus for $1,000

Q2) Which statement about "stock dividends" is correct?

A)Only a memo entry is needed for this transaction.

B)No entry is needed in the accounting records.

C)A journal entry is needed for this transaction.

D)This is the same as a stock split for accounting purposes.

Q3) Contrast the different treatment between IFRS and ASPE with respect to property dividends.

Q4) Supply Company Ltd.issues a $60 million bond due in 10 years,and the bond indenture specifies that the company must set aside $6 million per year in a sinking fund so that the company will have funds to repay the bondholders at the end of 10 years.Assuming that the company complies with the contractual requirements,what would the journal entry be for each of the next 10 years?

Q5) What are three potential outcomes for defaults on share subscriptions?

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Chapter 14: Complex Financial Instruments

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Q1) Which statement is correct about the accounting for employee stock options?

A)The expense is recorded over the period of vesting.

B)The expense is recorded over the period to expiry.

C)The expense is recorded immediately upon grant date.

D)No expense is recorded for accounting purposes.

Q2) Which of the following is an example of a "future"?

A)Right to buy 100 shares of CIBC over the next 5 years.

B)Commitment to buy 100 barrels of oil next month at $125/barrel.

C)Commitment to buy $100,000 US dollars in 120 days at US$=1.10.

D)Pay interest at prime +3% in exchange for receiving interest at 5%.

Q3) Which is a derivative on the company's own common shares?

A)Accounts payable.

B)Warrants on common shares.

C)Commodity futures contract.

D)Warranty provision.

Q4) Which of the following is an example of a "warrant"?

A)Right to buy 100 shares of CIBC at $50.00 per share over the next 5 years.

B)Commitment to buy 100 barrels of oil next month at $125/barrel.

C)Commitment to buy $100,000 US dollars in 4 months at US$=1.10.

D)Pay interest at prime +3% in exchange for receiving interest at 5%.

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Chapter 15: Earnings Per Share

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Q1) Which statement is correct?

A)A simple capital structure includes potentially dilutive securities.

B)A simple capital structure excludes potentially dilutive securities.

C)EPS applies only to a company with a simple capital structure.

D)A company with a simple capital structure does not need to calculate EPS.

Q2) Which statement is correct?

A)Share issuances increase the EPS denominator.

B)Stock splits have the same effect on EPS as share issuances.

C)Stock dividends have the same effect on EPS as share issuances.

D)Share issuances decrease the EPS denominator.

Q3) Accu Tech Renovations Corp.(ATRC)was incorporated on January 1,2018.At that time it issued 100,000 ordinary shares;80,000,$20,3% preferred shares "A";and 40,000,$20,6% preferred shares "B." Net income for the year ended December 31,2018 was $1,800,000.ATRC declares and pays total of $238,000 in dividends.Both the preferred shares series A and B are cumulative in nature.Series A must be fully paid their current entitlement as well as any arrears before any monies are paid to the Series B shareholders.

Required: Compute basic EPS.

Q4) Explain the difference between basic and diluted EPS.

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Chapter 16: Accounting for Income Taxes

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Q1) In the first two years of operations,a company reports taxable income of $125,000 and $65,000,respectively.In the first two years,the company paid $50,000 and $13,000.It is now the end of the third year,and the company has a loss of $160,000 for tax purposes.The company carries losses to the earliest year possible.The tax rate is currently 25%.

Required:

Compute the amount of income tax payable or receivable in the current (third)year.

Q2) Which of the following is an example of a "permanent difference"?

A)Warranty provisions.

B)Dividends received by corporations.

C)Depreciation on capital assets.

D)Completed contract method.

Q3) What is one reason to use the taxes payable method?

A)It is a complicated method,but results in the least tax expense.

B)A company only pays tax once a year under this method.

C)It results in the best matching for the balance sheet.

D)It is the least costly method for tax accounting.

Q4) Why does the tax system appear to treat profits and losses asymmetrically?

Q5) Describe what is meant by a timing difference.

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Chapter 17: Pensions and Other Employee Future Benefits

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Q1) Which statement is correct?

A)An unexpected gain on plan assets represents an unfavourable difference between actual and expected amounts of income from pension assets.

B)Actuarial gains and losses arising from the obligations of a pension plan derive from differences between the actual and expected values of the obligation.

C)IFRS requires actuarial gains and losses to be recorded the income statement.

D)An unexpected loss on plan assets represents a favourable difference between actual and expected amounts of income from pension assets.

Q2) Which statement is correct?

A)The plan sponsor of a defined benefit plan never needs to increase its contributions to the pension trust.

B)A defined contribution plan is a pension plan that places investment risk on the employers.

C)Inadequate contributions to a defined benefit plan by the plan sponsor or poor investment returns will result in an underfunded pension.

D)A defined contribution plan specifies the fixed benefits that future retirees will receive.

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Chapter 18: Accounting for Leases

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Sample Questions

Q1) When is it possible for the present value of the minimum lease payments to exceed the fair value of the leased property.What must the lessee do to prevent recording an overvalued asset?

Q2) The following are characteristics of a lease:

\[\begin{array} { | l | l | }

\hline \text { Price of leased asset from manufacturer } & 312,100 \\

\hline \text { Lease payments } & 75,000 \\

\hline \text { Lease term } & 4 \text { years } \\

\hline \text { Lease frequency } & \text { Annual } \\

\hline \text { Payment timing } & \text { End of year } \\

\hline \text { Guaranteed residual value } & 15,000 \\

\hline \text { Interest rate implicit in the lease agreement } & 5 \% \\

\hline \end{array}\]

Required:

Determine the appropriate classification for this lease for the lessor (who is not the manufacturer)and record the journal entries for the lessor for the first year of the lease.

Q3) Why do lessors generally prefer finance lease treatment? Explain.

Q4) Why do lessors prefer financing lease treatment over operating lease treatment?

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Chapter 19: Statement of Cash Flows

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Q1) The opening balance in the computer account for Adara Corp for fiscal 2017 was $100,000;the closing balance was $107,000.The corresponding balances in the accumulated depreciation accounts were $63,000 and $67,500.During the year Adara scrapped a computer originally costing $13,000 having a remaining net book value of $3,500 and purchased a replacement machine for cash.

Required:

a.Prepare the underlying journal entries to record the foregoing transactions and record events stemming from the transactions.

b.For each entry identify the cash flow effects,if any,under both the direct and indirect methods of presentation and classify the cash flow according to its nature.

Q2) Which of the following is a financing activity?

A)Collection of accounts receivable.

B)Collection of loans receivable

C)Receipt of bank loan.

D)Sale of a machine.

Q3) Explain the options for recording interest and dividends received and interest and dividends paid on the cash flow statement according to IAS 7.

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Chapter 20: Accounting Changes

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Sample Questions

Q1) Define "a retrospective adjustment."

Q2) Why are retrospective adjustments to past years' income and expenses recorded directly in retained earnings?

Q3) Chisholm Appliances is a relatively new producer of commercial grade appliances.To enhance the competitiveness of its products,on July 1,2018,the company introduced a warranty against defects for 12 months from the date of installation. No warranty claims were received in 2018.However,in February 2020,when the auditors examined the records for the year ended December 31,2019,they noted $255,000 of warranty claims relating to 2019 recorded as miscellaneous expense.The auditors requested the company to accrue for the expected warranty costs retrospectively to 2018.

The auditors agreed with Chisholm's management that the estimated warranty fulfillment costs should be 0.5% of revenue.The company recorded revenue of $55,598,000 in 2018 and $56,213,000 in 2019.The company's tax rate is 30%.The general ledger for 2019 has not yet been closed.

Required:

Record any adjusting journal entries required to correct Chisholm's books.Include the effect of income taxes.

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